Robert I. Csehi
Center for European Union Research (CEUR)
Central European University (CEU)
[email protected]
Horizontal coordination in federal political systems –
non-centralization in the European Union and Canada compared
(DRAFT – PLEASE DO NOT CITE OR CIRCULATE)
Abstract
The economic and financial crisis in the European Union (EU) resulted in less formally regulated
horizontal coordination mechanisms among member states. Similar patterns can be seen in other
federal political systems where intergovernmental relations often lack a vertical axis and instead
rely on interactions among constituent units. Using a comparative federalist approach, the main
objective of this article is to understand how intergovernmental relations come to facilitate
horizontal coordination in federal political systems. Starting from the notion of ‘shared rule’, the
article argues that ‘non-centralization’ may occur in a given policy area when the loss of
resources at the constituent unit level is not compensated with an equivalent increase in federal
powers. In the meantime, horizontal interdependence as well as vertical independence is
facilitated through different incentives. The combination of these two factors lead to horizontal
coordination where federal actors also play an important role. The analytical framework
advanced in the paper is applied to two different cases, namely the Canadian inter-provincial
trade issue and the EU’s economic governance framework.
Key words
Federalism, intergovernmental relations, horizontal coordination, EU governance, Economic and
Monetary Union, inter-provincial trade, Canadian federalism
1
The question of horizontal coordination in federal political systems
Intergovernmentalism in the European Union (EU) has recently gained renewed attention in both
academic (see Bickerton et al., 2015a, 2015b, 2015c; Schimmelfennig, 2015) and political
discourses1. Whereas the Lisbon Treaty ‘constitutionally’ strengthened intergovernmental bodies
(e.g. European Council), the economic and financial crisis has put more emphasis on less
formally regulated intergovernmental procedures and institutions (Puetter, 2012, 2014; Fabbrini,
2013; Fabbrini in this issue) in the field of economic governance. The European Financial
Stability Facility (EFSF), the European Stability Mechanism (ESM), the establishment of the
Euro Summit, the Euro Plus Pact, and the Treaty on Stability, Coordination and Governance
(TSCG) all seem to have increased horizontal coordination within the EU while also
strengthening common European institutions (Menendez, 2014). How can such a unique and
ambivalent intergovernmental development be understood?
Luckily, the above-mentioned dynamics are present not only in complex multi-level governance
structures, such as the EU, but can also be traced in fully-fledged federal political systems. In
Canada, even though intergovernmental relations are generally used to facilitate federal lawmaking (e.g. Canada Pension Plan), often more emphasis is given to horizontal coordination
where inter-provincial bodies and procedures come to substitute for the lack of centralized,
federal decisions (e.g. Agreement on Internal Trade (AIT), Council of Ministers on Internal
Trade, Internal Trade Secretariat), giving federal institutions a different role in policy-making.
Such deviations from established cases can provide common grounds for a comparative case
study. Consequently, the main objective of this article is to develop an analytical framework
which aims to understand how informal, non-regulated horizontal coordination occurs in federal
political systems and what are their most relevant features.
To this end, the article will first review intergovernmental relations in the light of both the
federalist and the EU integration studies literature. The aim is not only to highlight existing gaps
with regard to the main question but also to identify potential connecting points, a theoretical
added-value of the paper. This will be used to draw up an analytical framework which departs
1
See for instance: ‘Leo Tindemans, statesman, 1922-2014’ in Financial Times, 28 December 2014,
http://www.ft.com/cms/s/2/828f1c9e-8db0-11e4-86a3-00144feabdc0.html#axzz3bjydqsnY . See also ‘Reform of
Europe will not lead to supra-nationality, Sarkozy says’, https://euobserver.com/political/114479 .
2
from the notion of ‘shared rule’ (see Jachtenfuchs and Kraft-Kasack in this issue), and uses the
centralization-decentralization and interdependence-autonomy axes (see Bolleyer and
Thorlakson, 2012) to grasp the changing character and function of intergovernmental relations.
Two developments will be differentiated: one concerning a move from decentralization to noncentralization where the locus of power in a given policy area leaves the constituent units yet it
does not ‘arrive’ at the federal level, but rather gets ‘absorbed’ through horizontal coordination.
The second development involves the emergence of incentives for greater horizontal
interdependence yet at the same time preference remains strong for independence or autonomy in
vertical relations. The paper will apply the framework to Canada’s inter-provincial trade policy,
and the EU’s economic governance. Interestingly, both students of Canadian federalism and EU
studies are confronted with existing and increasing intergovernmental elements in their
respective polities, yet their explanatory attempts are rather isolated from each other. One of the
main added-values of the paper is to bridge the gap between these two, so far unrelated empirical
and theoretical discussions.
‘Executive federalism’ and ‘intergovernmentalism’ – comparative federalism meets EU
integration studies
Intergovernmental relations (whether horizontal or vertical) are supposed to be “an inherent part
of a genuine federal vision” (Nicolaidis, 2001: 454), and federalist scholars traditionally
considered the formal, constitutional settings (Hueglin and Fenna, 2006) such as the division of
power, representation formulas, and fiscal autonomy to have a major impact on them. Simeon
(1973) described intergovernmental relations and policy making in Canada as an inter-play
among three sets of separate yet interrelated factors: (1) social and cultural characteristics, (2)
institutional and constitutional elements, and (3) particular norms, attitudes, goals and
perspectives. He argued that intergovernmental relations were used as a tool to facilitate2 lawmaking and constitutional revision3 (e.g. Canada Pension Plan)4 in cases where federal
2
Intergovernmental relations are considered as ‘add-ons’ to the parliamentary system by Papillon and Simeon
(2004).
3
See Verney (1989) who considered executive federalism as half-federalism or a transitional stage towards fullblown legislative federalism where regional interests are represented and accommodated in a federal legislative
body (i.e. an elected Senate).
4
Constitution Act, 1964 which extended federal jurisdiction over pensions while allowing provinces to run their own
systems.
3
legislation could not act as an arena “for the expression and accommodation of local and regional
interests” (Simeon, 1973: 8). The framework of ‘federal-provincial diplomacy’, or ‘executive
federalism’ as it was labeled by Smiley (1974, 1987), Verney (1989), Watts (1991) and Bakvis et
al. (2009)5, did not address the role of more informal horizontal coordinating mechanisms
directly.
Furthermore, even though it was acknowledged that the results of ‘executive federalism’ may
vary (see Brock, 2003)6, no explanation was given to account for the variations of the role of
intergovernmental relations in legislative (or even constitutional) decisions and more informal
horizontal coordination. Cameron and Simeon (2002) aimed to respond to this challenge and
described a new pattern of intergovernmental relations emerging in the 1990s in Canada.
‘Collaborative federalism’, they argued, referred to the “co-determination of broad national
policies” (Cameron and Simeon, 2002: 49) by the different orders of government, which was
initiated by the failed attempts to amend the constitution and politics of fiscal deficits 7. In other
words, they tried to understand the turn towards more informal coordination mechanisms, yet
they explained this turn with the same formal, constitutional elements (or rather their rigidity)
that Simeon used to describe ‘federal-provincial diplomacy’ facilitating federal legislation
outside the parliamentary framework (Simeon, 1973). Their study, however, emphasized the
relevance of a shift from intergovernmental (i.e. vertical relations between the provinces and the
federal government) to inter-provincial (i.e. horizontal relations between individual provinces)
relations8. This shift was also emphasized by Bolleyer (2009), and Bolleyer and Börzel (2010)
from a micro-structural perspective arguing that the executive-legislative relations in constituent
units had an impact on intergovernmental institutions and procedures. However, it could not
account for cases where intergovernmental practices in specific policy areas changed over time
despite macro- and micro-structural elements being intact.
5
There were alternative understandings of ‘executive federalism’. Dawson (1987) used the concept to describe how
the federal cabinet represented regional interests as opposed to the Senate in ‘legislative federalism’. Smiley used
the term for separate external mechanisms such as First Ministers’ Meetings.
6
See also Poirier (2001) on the different functions of intergovernmental concordats (not relations in general).
7
Although it is not clear how fiscal capacities influenced the issue of inter-provincial trade barriers.
8
This notion was also repeated by Bolleyer (2009) who highlighted the link between vertical and horizontal
relations.
4
As for European integration studies, ‘liberal intergovernmentalism’ (Moravcsik 1993, 1998;
Moravcsik and Schimmelfennig, 2009) argues that the essential character of
intergovernmentalism does not change over time: states remain the major actors in the context of
anarchy. However, as more and more sensitive areas (e.g. fiscal, energy, social, and employment
policies) require coordination among constituent units, the complexity of policy challenges is
more likely to limit member-states’ preference-building capacity (see also Wincott, 1995),
essentially questioning the framework. The analytical concept of deliberative
intergovernmentalism was advanced by Puetter (2012) to face this challenge. It featured policy
deliberation as essential for cross-jurisdictional policy coordination and something to be
expected to “spread to the highest levels of decision-making” (Puetter, 2012: 166), while
transforming the institutions and procedures of intergovernmentalism accordingly, as responses
to the economic and financial crisis demonstrated. Bickerton et al. (2015a, 2015b, 2015c) argue
that the integration process entered a phase of ‘new intergovernmentalism’ in the post-Maastricht
period where integration is reached without giving more emphasis to supranational institutions
and formal legislative measures. Criticizing liberal intergovernmentalism, they claim that
domestic politics, and thus preference formation is increasingly concerned with questions of
legitimacy and representation, core issues of federalism. In fact, much of what is described as
‘new intergovernmentalism’ resonates with the notion of ‘executive federalism’ which is not
unknown within the EU integration literature with similar shortcomings as outlined above (see
Dann, 2003; Crum, 2013). In fact, the ‘integration paradox’ (Puetter, 2012, 2014) and the notion
of ‘new intergovernmentalism’ reflect essential principles and procedures of federalism, such as
the focus on a balance between unity and diversity (see Jachtenfuchs and Kraft-Kasack in this
issue), self-rule and shared rule. Furthermore, ‘new intergovernmentalism’ seems to share some
characteristics with executive federalism in particular, such as the emphasized role of the
executive over the legislative branch of government, cross-jurisdictional coordination among the
different orders of government, and consensus-seeking mechanisms. In fact, it is surprising why,
despite the impact on the overall process of integration, this phase of ‘new
intergovernmentalism’ was not analyzed from a federalist perspective. This article aims to fill
this gap by bringing the two frameworks closer together as comparative federalism allows to
extend the scope of intergovernmentalist analysis from grand intergovernmental bargains to
understanding the emergence and significance of intergovernmental arrangements within a given
5
constitutional structure. After all, comparative federalism makes clear that centralized legislative
decisions / supranationalism and decentralized coordination / intergovernmentalism coexist in
most federal political systems.
Explaining the emergence of horizontal coordination in federal systems
Federalism is often used to mean the combination of ‘self-rule and shared rule’ (Elazar, 1979),
and implies the existence of not only institutions but also processes, which makes it a dynamic
concept9. Mueller (2014) rightly argues that the notion of ‘shared rule’, an essential feature to
theorize on intergovernmental relations, has been surprisingly understudied. It generally implies
a legislative action: either it refers to the different orders of government working together
passing federal legislative decisions or it is connected to an administrative division of labor
where federal legislation is implemented by the lower levels of government in a coordinated
manner. A federal system based on such sharing is often referred to as ‘cooperative
federalism’10, which nevertheless “covers a wide range of activities, not all of which have the
effect of co-ordinating territorial interests with federal interests in a federal legislative arena”
(Thorlakson, 2003: 17)11. In fact, the concept of ‘cooperative federalism’ hides important
variations of shared rule which may involve informal, non-legally regulated horizontal
coordination mechanisms as well. In order to explain how such intergovernmental dynamics may
occur, the paper opens up the concept of ‘shared rule’ with the help of a study by Bolleyer and
Thorlakson (2012) which uses the centralization-decentralization and the interdependenceautonomy axes to assess federal systems.
The centralization-decentralization axis refers to the location of power. It concerns the resources
(e.g. fiscal, political and administrative) a given order of government possesses to act. The
problem with this axis is that it implies a trade-off: the reduction in the power of one order of
government means an increase for the other. More importantly, this categorization does not
allow for scenarios where a trade-off does not materialize, where a decrease in constituent unit
9
The right allocation of competences may change over time which needs to be handled flexibly by federal systems.
This feature is one of the most important characteristics (see Bakvis et al., 2009) of federal systems, and provides
intergovernmental relations a prominent role.
10
As opposed to ‘dual federalism’ where ‘self-rule’ dominates and separate jurisdictions watch over separate
areas.
11
Emphasis added by the author.
6
powers does not automatically mean an increase at the federal level. This phenomenon is
referred to in this paper as non-centralization (see Elazar, 1979; Nicolaidis, 2001) which
describes an essentially unbalanced stage.
The second axis refers to the autonomy-interdependence continuum which captures the ways
different governmental levels relate to one another and is conceptualized as “a two-way process
characterized by the extent to which government units located on different levels are invited or
pressed to operate in a mutually coordinated manner” (Bolleyer and Thorlakson, 2012: 569)12.
Fiscal, political and administrative incentives are used to invite coordination across the different
orders of government. However, this approach is limited in one important aspect: it only focuses
on interdependence across the different levels of government, yet does not consider horizontal
relations. Differentiating between horizontal and vertical axes allows for cases where incentives
for horizontal interdependence go hand-in-hand with a stimulus for autonomy in vertical
relations. This in turn facilitates horizontal coordination while limiting the role of the federal
level.
This paper argues that horizontal coordination is likely to dominate intergovernmental relations
in a given policy area if two developments occur and reinforce each other at the same time. First,
there is a move towards non-centralization where constituent units find it more difficult to act
alone, yet resources are not given to the federal level to make decisions unilaterally. Under such
circumstances the major function of intergovernmental relations is not to assist a formal transfer
of competences from one jurisdiction to another but rather to substitute it with more informal
coordinating mechanisms. A closer look at the character of policy challenges (i.e. the complexity
and interdependence of the matter), as opposed to micro- and macro-structural elements (see
Fabbrini in this issue), is crucial in understanding this development13. Secondly, the process is
further facilitated by incentives for horizontal interdependence which are matched with a
preference for autonomy in vertical relations. In order to ensure such ambivalence the character
of intergovernmental relations is likely to change. Either, already existing intergovernmental
bodies and processes adapt to the new environment or alternatively, new institutions emerge to
respond to the policy challenges. This, in turn requires an adjustment in the role of the federal
12
Emphasis added by the author.
See also Hooghe and Marks (2015) on the role of the scope of policy portfolios in influencing the level of
delegation and pooling in international organizations.
13
7
level as well: instead of driving the events, their main purpose will be to administer, support and
facilitate horizontal coordination.
In sum, it is argued here that intergovernmental relations may develop in two different ways.
Depending on whether there is a drive towards centralization or non-centralization,
intergovernmental relations could serve the function of either assisting federal legislation
(centralization) or facilitating horizontal policy coordination (non-centralization). This does not
exclude the possibility of a stronger push for centralization at a later point in time where
incentives for vertical interdependence are also created.
Comparing the EU with Canada?
To assist the theory-building exercise the paper will test the analytical framework highlighted
above in a comparative case study between the EU and Canada. Such a comparison can be
justified on different grounds (see DeBardeleben and Leblond, 2010: 2). Even though the EU is
generally compared with the US (e.g. Nicolaidis and Howse, 2001; Menon and Schain, 2006),
“Canada is the state that comes closest to the EU in several critical aspects” (Fossum, 2009:
498)14. Even though Canada is generally characterized as a federal state, its character is
considered to be as contested as the EU (see Bakvis et al., 2009). Neither has reached its finalité
politique making the allocation of competences an open-ended process in both cases. Both
entities cover noticeable regional, geographic, economic, cultural and even historical diversities.
In terms of the institutional settlement, due to an essentially parliamentary form of government
both in Canada and the EU, the executive seems to dominate the system, despite the difference in
the level of formality. The relation among the heads of governments is described as diplomatic in
both the EU (Fossum, 2004) and Canada (Simeon, 1973). In both cases, intergovernmental
institutions and procedures are an essential building block of the multilevel polity that are
supposed to guarantee constituent unit representation in decision-making. It is argued here that
even though Canada and the EU may differ in their formal, constitutional structures, in both
cases we see a convergence in the patterns of intergovernmental relations they use. There are
exceptional cases where the function and character of intergovernmental relations differ from the
‘ordinary’ which makes them a perfect candidate for a comparative study. The paper will closely
14
See also Ugland (2011) on Canada’s influence on Jean Monnet’s ideas about European integration.
8
look at the cases of internal trade policy in Canada in the 1990s and economic governance in the
EU during the crisis to see how informal horizontal policy coordination came to dominate within
these areas.
Inter-provincial trade in Canada
According to Section 91(2) of the Canadian constitution, Parliament has the authority to regulate
trade and commerce, both international and inter-provincial. However, the federal government
did not use this section to establish general rules and a regime, and there was quite an uncertainty
about whether it could do this without the consent of its provincial counterparts. What followed
was a number of Supreme Court decisions15 trying to address different aspects of this broad
constitutional power and fine-tune the rather vague description concerning jurisdiction over
internal trade. Yet, the issue remains contested to this day16. Beyond the trade and commerce
power, Section 121 of the Constitution Act (1982) establishes that the free movement of goods
(“articles of the growth, produce or manufacture”) shall be guaranteed among the provinces. Yet,
jurisprudence17 on this section shows similar ambiguity as with regards to Section 91(2).
Up until the early 1980’s the issue of inter-provincial trade was rather decentralized: as shown
above the federal government did not have the political resources to legislate in inter-provincial
trade. This lack of power resulted in the vast number of trade barriers provinces erected among
one another18. Provincial independence in decision-making was upheld in both horizontal and
vertical relations. As one of the former internal trade representatives argued “there was an
uneasy truce between the provinces and the federal government (…) there has never been a
15
The most relevant decisions: the Citizens’ Insurance Company of Canada and The Queen Insurance Company v.
Parsons case (1881); the Fish Canneries (1928); the Aeronautics References (1931); the R. v. Crown Zellerbach
Canada Ltd case (1988); the Reference Re Farm Products Marketing Act (1957); the Carnation Co. Ltd. v. Quebec
Agricultural Marketing Board case (1968); the Manitoba Egg Reference (1971); the General Motors of Canada Ltd.
v. City National Leasing case (1989).
16
Even nowadays important decisions are taken concerning the trade and commerce power of the constitution.
See Reference Re Securities Act (2011).
17
The most relevant decisions: the Gold Seal Ltd. v. Alberta (Attorney-General) case (1921); the Lawson v. Interior
Tree Fruit and Vegetables Committee of Direction (1931); the Murphy v. C. P. R. case (1958).
18
The Rowell-Sirois Royal Commission on Dominion-Provincial Relations (1938-1940) summarized the different
provincial protectionism techniques and identified it as a potentially serious issue. In 1978, the Pepin-Robarts
Report practically repeated the main concerns. By the 1980’s, national news media was flooded with articles
describing inter-provincial trade barriers. See e.g. Divide and damage, in The Globe and Mail, 10 December, 1983.
9
Supreme Court reference that clearly laid out where the federal government’s powers ended and
provincial powers started”19.
The status quo was challenged in the mid-1980s when provincial autonomy was beginning to
fade. By the time the Royal Commission on the Economic Union and Development for Canada
(i. e. MacDonald Commission) delivered its report in 1985, inter-provincial trade barriers was
identified as a hurdle for regional economic integration. Tariffs heavily favored the protectionist
provinces of Ontario and Québec and were more and more costly for the Western and Eastern
provinces (Watts, 1986; Simeon, 1987). Overall economic efficiency was decreasing (e.g. trade
exports fell in the 1980s, there was an economic recession in the early 1980s with massive
government deficits) which required a re-adjustment to market processes. Clearly, provincial
governments did not have the resources (fiscal or political) to boost regional economic
integration and solutions were needed to increase competitiveness and productivity. A 1985
intergovernmental paper entitled ‘On the Principles and Framework for Regional Economic
Development’ suggested that as a solution, “governments should explore opportunities for
increasing interregional trade and eliminating barriers between provinces” (13). Interestingly, the
loss of resources at the provincial level was not compensated with an increase of decisionmaking power at the federal level. Quite the contrary, the old status quo was maintained: neither
the patriation of the Constitution in 1982, nor the Meech Lake Accord (1987), a constitutional
reform proposal, provisioned a formal transfer of internal trade competences to boost the
economy. In fact, the call for a Conference on the Economy20 by the Meech Lake Accord
indicated that provincial governments wanted to keep consultations informal through
maintaining an intergovernmental format that gave a prominent role to the Premiers. It became
clear that a highly unbalanced situation with non-centralization dynamics was emerging.
At the same time, incentives for horizontal interdependence were present. Provinces possessed
jurisdictional powers in many areas under inter-provincial trade that was necessary to jump-start
regional economic integration. As a response, the 1986 Annual Premiers’ Conference agreed to a
set of steps that should help reduce inter-provincial barriers through a permanent mechanism and
guiding principles. The proposal was further buttressed in 1987, when Premiers established the
19
Anonymous interview conducted in Toronto, 29 January, 2013. (PROV_LD02)
Or Annual Meeting of First Ministers on the Economy, in First Ministers’ Conference on the Constitution, 3 June,
1987 (p. 19) http://originaldocuments.ca/api/pdf/1stMinConfVerbTr1987Jun3.pdf .
20
10
Committee of Ministers on Internal Trade (CMIT). Its main responsibility was to identify
existing and potential barriers to trade and reduce and remove them through consultations. Its
importance resided in the fact that for the first time “a dedicated intergovernmental ministerial
committee, armed with a clear mandate and resources for its accomplishment, was working in
the internal-trade policy field” (Doern and MacDonald, 1999: 43). The creation of the CMIT and
the greater involvement of the Premiers indicated that provincial governments were accepting
interdependence in horizontal relations while they were determined to preserve their autonomy
vis-á-vis the federal government. In 1991, the federal government proposed a revision21 of
Section 121 of the constitution so as to “enhance the mobility of persons, capital, services and
goods within Canada by prohibiting any laws, programs or practices of the federal or provincial
governments that constitute barriers or restrictions to such mobility” (Part 3.1. under Enhancing
Trade and Mobility in Canada). In terms of the economic union, the accord aimed to establish a
shared responsibility where responses to challenges come from “intergovernmental collaboration
and consultation” (Part 3.1. under Strengthening the Economic Union). These proposals were
expected to serve as the basis to the Charlottetown Accord that was negotiated in 1992.
However, provinces proved unwilling to alter the constitutional framework. As Jim Horsman,
the Minister of Federal and Intergovernmental Affairs in Alberta argued in the provincial
legislative assembly at the time: “from our perspective at this stage, while we have endorsed in
principle and have supported enthusiastically the real removal of inter-provincial trade barriers
we are not prepared to accept handing over to the federal government the enormous club they are
asking for in section 121 expansion”22. Consequently, it was not the failed attempts to revise the
constitutional distribution of powers that led to informal solutions in the area of internal trade.
Instead, provincial governments deliberately avoided any formal transfer of powers to the federal
government while ensuring horizontal coordination. This has been supported by a senior public
official who argued that: “One of the most important norms throughout the negotiations was to
deal with the practical problems created by the federation without disturbing it (…) You simply
did not want to constitutionalize…rather we were aiming at a mutually acceptable undertaking
that was definitely not legal in nature”23. This non-centralization drive has been further
21
http://www.solon.org/Constitutions/Canada/English/Proposals/Proposal.english.txt
Alberta Hansard, 26 June, 1992. p. 1675.
23
Anonymous over-the-phone interview conducted in Brussels, 6 April, 2012. (PROV_IGR02)
22
11
buttressed by the fact that even though both the Meech Lake and the Charlottetown Accords
(1992) failed to gain support from the provinces, intergovernmental coordination on interprovincial trade barriers continued.
Financial incentives for horizontal coordination were twofold. First and foremost, analyses24 on
the presumed costs of inter-provincial trade barriers pushed provinces towards a common
solution while the federal governments’ budgetary cuts also facilitated closer cooperation among
provinces. After the defeat of the Charlottetown Accord, during a meeting in Montréal in March,
1993, the CMIT announced that it would start comprehensive negotiations by 1 July, 1993 which
were concluded with the signing of the Agreement on Internal Trade (AIT) in 1994. Despite the
political nature of the document (the AIT is not legally binding), not only did it formalize interprovincial and intergovernmental institutions (Chapter 16), but it did “remove or lessen the
capacities of governments, especially provincial governments, to act in ways that had been
possible in the previous three decades” (Doern and MacDonald, 1999: 154). The discretionary
power of individual provinces have been constrained through the narrowing range of available
policy options in inter-provincial trade. This became manifest through the establishment of a
dispute resolution mechanism (Chapter 17) which was supposed to substitute for the lack of the
jurisdiction of the Supreme Court (see Article 1707.4)25, through the monetary penalties (up to
CAD 5 million), the suspension of certain rights (e.g. right to dispute resolution), and other
retaliatory actions. The role of the Annual Premiers’ Conference (APC) was often crucial in
pushing negotiations forward. The issue of internal trade continues to be a dominant agenda item
in the workings of the Council of the Federation (CoF), the more formalized successor of the
APC. In fact, “the Council of the Federation has turned into a horizontal policy coordination
body where Premiers lead on issues important for Canada…the nature of the CoF is different to
that of its predecessor the Annual Premiers’ Conference”26. The CMIT was the ideal place for
policy deliberation: talks were generally conducted “in a black hole of secrecy”27, ‘small wins’,
such as the agreements on procurement and beer marketing created a positive atmosphere and
24
See study carried out later by the Canada West Foundation, in Provinces’ trade rules cause grief, in Calgary
Herald, 2 June, 1994.
25
Even though it is provisioned that each party shall take measures necessary to ensure that the decisions on
monetary penalties may be enforced "in the same manner as an order against the Crown in that Party's superior
courts" (article 1701.4 (b) i).
26
Anonymous interview conducted in Toronto, 10 January 2013. (PROV_LD06)
27
Let our people trade (1), in The Globe and Mail, 5 April, 1994.
12
provided further incentives for horizontal coordination. As one of the formal trade
representatives argued, “Ministers first met every two months, then monthly, and at the end of
the negotiation process, every two weeks (…) while the chief negotiator came from the trade
ministry, the alternate chief negotiator resided in the Premier’s office, which indicates that there
was a lot of political involvement”28, the aim of which was to ensure a balance between
horizontal coordination and vertical independence. In general, the internal trade process was
“supported by a new set of institutions designed specifically to deal with policy making through
negotiation between jurisdictions” (Doern and MacDonald, 1999: 45). A neutral Chair was
introduced during the negotiations which was replaced by a rotating Chair which increased a
sense of ownership among provinces. Additionally, there was a Secretariat which reported to the
Chair and whose main responsibility was to provide analytical resources to establish common
levels of understanding. The role of the federal government in inter-provincial trade is that of a
facilitator and administrator. It provides half of the funds for the Internal Trade Secretariat and
acts “as an honest broker leaving most of the responsibility to the provinces”29.
In sum, inter-provincial trade barriers confronted the Canadian federation with a challenge where
a loss of provincial resources to deal with the issue was not compensated deliberately with an
increase of powers at the federal level, creating a non-centralization dynamic. At the same time,
incentives emerged for greater horizontal cooperation which was balanced with an equal drive
for autonomy in vertical relations. The result was an unprecedented horizontal intergovernmental
development where new institutions and processes were established to substitute a formal
rearrangement of powers. The inter-provincial coordination that emerged as a solution cemented
the non-centralized, horizontally interdependent relationship as it not only avoided federal, but
also provincial unilateral decision-making in the future.
Economic governance in the EU
Economic governance is about the coordination of economic policies across the EU. The earlier
treaties used a rather vague language where such coordination was emphasized (e.g. Articles 2,
6, and 105[1] of the Treaty of Rome), but its content remained essentially undefined. Member
28
Anonymous interview conducted in Toronto, 24 October, 2012. (PROV_LD01)
A Government Review Paper: Case Study on Federal-Provincial Collaboration – Internal Trade. 14 February,
1995.
29
13
states clearly possessed all the resources to dominate within this area and there was clearly no
formal transfer of powers to the Community level. This status quo was slowly changing with the
push for monetary integration after the 1970’s. In fact, the Werner Plan30 already described a
situation where “the loss of autonomy [over economic policy] at the national level has not been
compensated by the inauguration of Community policies” (Werner Plan, 7). Different
developments unfolded in monetary and in economic policies which was reflected in the Delors
Report31 in 1989, which proposed a transfer of decision-making powers in the area of monetary
policy to the Community level while stressing that “in the economic field a wide range of
decisions would remain the preserve of national and regional authorities” (Delors Report, 14)32
that would not require new institutions (Delors Report, 21). The intergovernmental feature
stressed by the Delors Report was maintained in the Maastricht Treaty which, besides repeating
articles from former treaties, put the Council in charge of ensuring coordination through ‘broad
economic guidelines’ and the monitoring of excessive deficit problems (see Article 104(c)).
Maastricht signaled a constitutional peak, as neither subsequent treaty reform provisioned
transfers of formal decision-making competences (see Puetter, 2012: 167). The Lisbon Treaty
simply reflected on the founding of the Eurozone (Article 3(4) of the TEU, and Article 136 of the
TFEU), and established the Euro Group (Article 137) which further increased the horizontal
feature of the policy area. The only addition to the economic policy framework was ensured by
the Stability and Growth Pact (SGP) in 1997 according to which “member states remain[ed]
responsible for their national budgetary policies” (point II), yet they were expected to commit
themselves to the objective of a balanced or positive budget33 in normal times and to take
corrective actions if necessary to ensure that objective (point 1 under Member States). Despite
the different Council regulations34 which aimed at strengthening the surveillance mechanisms
and coordination, “there was clearly no sufficient power given to the center to apply the rules in
30
Report to the Council and the Commission on the realization by stages of the economic and monetary union in the
Community. Source: http://aei.pitt.edu/1002/1/monetary_werner_final.pdf
31
Report on economic and monetary union in the European Community. Source:
http://aei.pitt.edu/1007/1/monetary_delors.pdf . Web source accessed January 20, 2013.
32
Apart from the system of binding rules governing the size and financing of national budget deficits all other
aspects of policy-making would remain in the hands of member states (Delors Report, 19).
33
In fact, “apart from providing a deficit rule, the Treaty d[id] not give further policy prescriptions” (Puetter, 2012:
168).
34
See Regulation No. 1466/97, 1467/97
14
a consistent way (…) the political will has not moved with the rules”35. This was reflected in the
2003-04 ‘deficit crisis’ where France and Germany did not comply with the deficit rules set out
in the Maastricht Treaty, yet the sanctions based on the SGP were voted down, effectively
destroying the pact in the process and attesting that member states still possessed the resources in
fiscal policy-making. Member states simply proved unwilling to transfer main prerogatives to
supranational institutions36. The ‘deficit crisis’ ended with a revision of the SGP framework37,
which nevertheless reiterated that national interests prevailed.
The fragile framework where “national politics weren’t ready for a full transfer of sovereignty,
and European politics wasn’t ready for more EU”38 was exposed during the latest financial crisis.
The crisis highlighted that members of the Euro area lacked jurisdictional and administrative
resources to deal with the crisis unilaterally in an effective and efficient way. On the other hand,
European institutions suffered from the same problem: they did not have the powers to advance a
common European solution. This unbalanced situation then witnessed an ambivalent
development where incentives for horizontal coordination were matched with a similar
reluctance in vertical relations. Clearly, the allocation of powers put the member states in a lead
position: the European Council became the center of political activity (see Puetter, 2014) which
led to a ‘reversed Community method’ where the European Council invited the European
Commission to make proposals instead of relying on its unilateral actions. Right from the
beginning “there were member states that were skeptical about legal resolutions…they wanted to
avoid legal action and rather pushed towards political decisions”39 that would not change the
institutional balance in favor of the supranational institutions. The Commission made an attempt
to reverse these dynamics. It tried to reserve the right of initiative by coming up with a package
of proposals40 (Six Pack) before the Van Rompuy Task Force finished its report41. However, the
Six Pack did not change any of the conditions already imposed by the SGP. It simply aimed to
enforce greater budgetary discipline by stipulating that sanctions would come into force earlier
35
Anonymous interview conducted in Brussels, 28 March, 2013. (MS_EFC02)
See court ruling on the SGP in July 2004 which underlined the sovereignty of member states in economic policy
giving the Council the responsibility for making member states observe budgetary discipline.
37
See Regulations (EC) 1055/2005 and 1075/2005.
38
Anonymous interview conducted in Brussels, 24 March, 2013. (MS_EFC01).
39
Anonymous interview conducted in Brussels, 28 March, 2013. (MS_EFC02)
40
COM(2010) 522-527.
41
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/117236.pdf
36
15
and more consistently than before, which was essentially a copy of proposals previously drafted
by the European Council42. Furthermore, it was the European Council that advanced the proposal
of the Euro Plus Pact in 2011, a clearly intergovernmental agreement which aimed to further
coordinate economic policies among member states without creating a central, collective
decision-making scheme. In November, the same year, the Commission put the Two Pack
legislation forward with further surveillance and monitoring procedures for euro area member
states. Its biggest achievement was the establishment of a European assessment of budgetary
plans for Euro area member states through the Commission while also improving national
budgetary frameworks by requiring them to set up independent monitoring bodies overlooking
fiscal rules. In 2012, the Two Pack was followed up by the Treaty on Stability, Co-ordination
and Governance (TSCG), an intergovernmental agreement which cemented the new stricter rules
of the SGP and introduced automatic correction mechanisms. It further improved the ex ante
coordination among euro area member states, and encouraged them to use the instrument of
enhanced cooperation. To support its workings the Euro Summit was established with the heads
of state and government from the euro area with the President of the Commission where the
President of the ECB is also invited. The Eurogroup prepares and conducts the follow up work
between Euro Summits. The function of the Eurogroup itself changed considerably. As one
European official from the Commission noted, “during the crisis, the Eurogroup was acting like a
firefighters’ meeting, […] it has become a better functioning institution with a Secretariat and a
permanent chair”43 both of which contributed to horizontal coordination efforts. As one member
state official argued, the TSCG was a clear indication that “member states had to start
coordinating in areas where the Union had no explicit powers, but there wasn’t much possibility
to go beyond the existing competence allocation”44. Jurisdictional incentives pushed horizontal
coordination among euro area member states further which constrained their capacity to act
unilaterally (see ex ante coordination).
There were other incentives at play during the crisis. Clearly, member states in trouble could not
finance their debts. Similarly, the EU itself did not have the necessary financial means to address
the European sovereign debt-crisis. This again facilitated horizontal coordination and resulted in
42
The idea of the European Semester was first introduced during the March, 2010 European Council.
Anonymous interview conducted in Brussels, 25 July, 2013. (CAB_REHN01)
44
Anonymous interview conducted in Brussels, 31 May, 2013 (MS_EFC05).
43
16
the European Financial Stability Facility (EFSF) in 2010, a special purpose vehicle financed by
euro area countries to provide financial assistance to members in economic difficulty. Its
permanent successor, the European Stability Mechanism (ESM) was built upon the same
intergovernmental feature in 2012. Even though the Commission has a role in negotiating a
support program with countries that request assistance, the Eurogroup has to unanimously accept
it. The ESM has a managing director, and its shareholders are the euro area member states. Its
Board of Governors comprises the Finance Ministers of the euro area and is chaired by the
Eurogroup President, while state secretaries generally sit in the Board of Directors. The ECB and
the Commission can send observers to its meetings. In some ways, the ESM is capable of
confining the economic sovereignty of its member states.
It was mainly administrative incentives that called for greater involvement of the supranational
level. Simply, it was the Commission and the ECB that had administrative capacities and
technical capabilities which would allow them to overlook the new economic governance
structure. Both institutions increased their powers, nevertheless these powers are connected to
different roles they have to play. Yet, these competences were guaranteed by the European
Council and are not connected to the Community Method decision-making. Member states saw
an opportunity to decrease their transaction costs through established institutions yet truly they
remained Herren der Verträge.
Similarities and differences
In both cases we see a gradual loss of resources at the constituent unit level. In Canada,
provincial autonomy in internal trade led to a hurdle for regional economic integration which
was required to face the economic crisis of the 1980s. In the EU, clearly members of the euro
area were incapable of solving the sovereign debt crisis on their own. Yet, in both cases, the
federal level lacked any meaningful powers to unilaterally solve the problems: in Canada even
though the federal government might have had jurisdiction it lacked the political mandate,
whereas in the EU, even though EU level solution was called for, supranational institutions did
not have any jurisdiction to act. Consequently, an unbalanced situation emerged where incentives
from increased interdependence pushed the events forward. In Canada, strong incentives for
horizontal coordination were present: provinces possessed most competences under interprovincial trade, and the federal government’s grants schemes were on a downward trajectory.
17
Both implied strong disincentives for vertical coordination at the same time. In the EU, the
situation was similar: member states possessed the most relevant jurisdictional powers in the
field of economic policy, while they were the ones capable of putting together a financial
stability program in a joint effort, not the Commission on its own. As far as administrative
incentives are concerned, in both cases the federal level gained powers in administering and
facilitating the horizontal coordination schemes established by the constituent units. However,
the federal government’s role in inter-provincial trade is still less relevant as provincial
governments traditionally have closer ties at the departmental level and transaction costs are
lower in comparison. EU member states gave increased powers to supranational institutions such
as the Commission and the ECB in administering horizontal coordination as they can
substantially decrease transaction costs for individual member states. Nevertheless, in both cases,
the role of the federal level was reduced from that of a law-maker to that of an honest broker and
administrator. Another major difference between the two cases is the institutionalization of
horizontal coordination. While Canada created new institutions at all levels, the EU reformed its
already existing institutions and gave them new roles: e.g. Eurogroup in ESM, ‘euro area
European Council’ under TSCG as Euro Summit. Furthermore, both Canada and the EU seem to
rely on less formal, less regulated arrangements in the form of intergovernmental agreements
(AIT and TSCG, ESM respectively), although there is a tendency for more formalization in the
European context (Six Pack, Two Pack).
Conclusion
The main objective of this article was to understand how the economic and financial crisis
created a unique situation where intergovernmentalism came to facilitate less formalized
horizontal coordination in the EU. Using a comparative federalist approach, it was argued that
intergovernmental relations should not be studied as grand theories about the essence of a polity
but rather as an important phenomenon in that polity. Federalism is built around the idea of
intergovernmental relations as one of its main principles is that of ‘shared rule’. However, as it
was argued, shared rule does not necessarily entail legislative links between jurisdictions, but
could also present itself in less formal horizontal forms. The paper then relied on the framework
advanced by Bolleyer and Thorlakson (2012) which used the decentralization-centralization and
autonomy-interdependence axes to describe federal systems. Through a revision of this
18
approach, the paper theorized that in situations where resources leave the constituent unit level
yet do not arrive at the federal level create an essentially unbalanced situation which was
described as non-centralization. Under such circumstances incentives for horizontal
interdependence coupled with disincentives for vertical interdependence push horizontal
coordination forward. Intergovernmental institutions change accordingly also having an impact
on the role of the federal actor which generally gains administrative resources. Through the case
studies of inter-provincial trade in Canada and EU economic governance, the main elements of
the analytical framework were tested and the major similarities and dissimilarities between the
two polities were highlighted. Even though both case studies represent exceptional cases in their
respective contexts, the question arises to what extent these developments represent a new trend?
Or rather non-centralization simply serves as a mezzanine towards further centralization where
meaningful powers are transferred to the federal level? Further analysis of similar cases could
shed further light on these questions.
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