Transaction-cost efficiency and the democratic deficit

Abstract

The extensive literature on the European Union's (EU) democratic deficit suffers from two serious limitations. First, it proposes to solve the problem by analogy with national practices instead of looking for its roots, and possible solutions, in the integration process itself. Second, this literature considers only the normative aspects of a condition that also has significant efficiency implications. Analogical reasoning has led to a continuous expansion of the powers of the European Parliament (EP) without any notable increase in democratic legitimacy. The origin of the democratic deficit is, quite simply, the failure to convert a majority of voters to the cause of political integration. This failure forced integrationist elites to sacrifice democracy on the altar of deeper integration in the hope of ‘making Europe without Europeans’. The strategy of pursuing political integration under the guise of economic integration backfired when it became evident that the EU kept falling behind its major international competitors in spite of ambitious projects like the Single European Market and Economic Monetary Union (EMU). One reason for this unsatisfactory performance is that in sacrificing democracy for the sake of deeper integration, EU leaders also sacrificed many formal and informal methods developed by democratic regimes in order to reduce various political transaction costs. Thus delegation of monetary policy to an independent central bank is a well-known method for solving the time inconsistency problem. In case of serious external shocks, however, a balance must be struck between commitment to monetary stability and flexibility. This is possible in a democracy, where elected policy-makers are able to provide the necessary political counterweight to the central bank's technocrats; this is impossible in the EU, where the European Central Bank (ECB) operates in a political vacuum. In turn, exclusive commitment to monetary stability further undermines the legitimacy of the Union. At present it seems that the only feasible way of reducing the democratic deficit is to reduce the mismatch between the extensive commitments of the EU and its limited normative and institutional resources.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 52 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.