the creation, interpretation and contestation of institutions — revisiting historical...

JCMS 2003 Volume 41. Number 3. pp. 445–73

Abstract

One shortcoming of much of the historical institutionalist literature is its alleged lackof testable propositions and the elusive notion of ‘unintended consequences’ of ini-tial institutional choices. This article, which offers an historical institutionalist ex-planation of institutional creation and operation, aims to overcome these shortcom-ings. We develop a set of propositions and demonstrate their plausibility by explor-ing the creation of the European Community’s budgetary treaty in 1970 and the op-eration of the enacted treaty provisions. We demonstrate that, under specific condi-tions, actors may be doomed to opt for ‘dysfunctional’ institutions at the moment oftheir creation. Furthermore, we show that the notion of ‘unintended consequences’does not necessarily help us to understand the reason for the contestation of treatyprovisions.

Introduction

It should be considered a truism that the constitutional reality of the EuropeanUnion (EU) can only be fully appreciated by exploring and explaining boththe creation and reform of the EU’s constitution (the treaty) (re-)negotiated atthe ‘grand bargains’, as well as the unfolding of the constitution over time,for instance through rule-interpretation (Héritier, 2001; Stacey, 2001), judi-cial dispute resolution (Stone Sweet and Brunell, 1998; Fligstein and Stone

The Creation, Interpretation and Contestation ofInstitutions – Revisiting Historical Institutionalism*

JOHANNES LINDNERNuffield College, Oxford

BERTHOLD RITTBERGERMannheimer Zentrum fur Europäische Sozialforschung (MZES)

* The authors wish to thank Derek Beach, Thomas Christiansen, Antoaneta Dimitrova, David Levi-Faur,Christine Lipsmeyer, Gerda Falkner, Jeremy Richardson, Lorena Ruano, Fritz W. Scharpf, Alec StoneSweet, and two anonymous referees for their helpful comments and John Peterson for his encouragementand editorial skill. Lucy Chevis and Chavi Keeney Nana provided invaluable help with the manuscript.The authors acknowledge financial support from the DAAD (Doktorandenstipendium im Rahmen desgemeinsamen Hochschulprogramms III), the Economic and Social Research Council (ESRC), andEUSSIRF (part of ‘The European Commission’s Access to Research Infrastructures’ section within thefifth framework programme).

© Blackwell Publishing Ltd 2003, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

446 JOHANNES LINDNER AND BERTHOLD RITTBERGER

© Blackwell Publishing Ltd 2003

Sweet, 2001) or ‘spillover’ mechanisms (Corbey, 1995). However, much ofthe so-called neofunctionalist–intergovernmentalist debate has suffered fromthis false dichotomy between process-oriented and more statist views of Eu-ropean integration. Few scholars to date have made serious attempts to in-clude both aspects of European integration, which we subsequently label theinstitutional creation and institutional operation phases, into their researchdesigns.1

Despite these attempts to look at the EU and the evolution of institutionsas a ‘moving picture’ rather than a ‘photograph’ (Pierson, 1996, p. 127), how-ever, the literature that can be assembled under the label of historical institu-tionalism has largely overlooked the constitutional evolution of the EU pol-ity. Historical institutionalist contributions to explaining aspects of EU policy-or polity-development have difficulty meeting empirical challenges posed bythe dynamism of these processes with methodological rigour (see Pierson,1996; Armstrong and Bulmer, 1998 and the overview by Aspinwall and Sch-neider, 2000). Admittedly, there have been recent attempts that focus on thecentrality of the temporal dimension and related methodological challengesin order to make sense of institutional evolution, i.e. institutional creation andchange/reformulation (Pierson and Skocpol, 2000; Büthe, 2002).2 Scholarsincluding Paul Pierson and Eric Schickler have detailed the conditions underwhich initial institutional choices lead to the emergence of unintended conse-quences and path dependence (Pierson, 2000a, b; Schickler, 2001). We stronglysympathize with the goal of developing propositions that can be subjected toempirical scrutiny in the historical institutionalist research programme. In theparagraphs that follow, we show that students of dynamic processes of insti-tutional development do not necessarily have to have recourse to ‘unintendedconsequences’ to account for the existence of dysfunctional institutions orpolicies. Furthermore, we follow Pierson (2000b), Schickler (2001) and Greif(2002) by specifying the conditions under which we would expect politicalactors to create institutions that are ‘full of tensions and contradictions’(Schickler, 2001, p. 3), and thus are likely to be contested. We not only ‘goback and look’, but also develop generalizable propositions about the linkbetween institutional design and operation (instead of attributing dysfunc-tional institutions post hoc to the phenomenon of ‘unintended consequences’)and provide plausibility tests to illustrate the application of these proposi-tions.

In the first part of this article (Section I), we treat the institutional creationand institutional operation phases as analytically distinct. We posit that one

1 For some prominent exceptions, see Pierson (1996), Stone Sweet et al. (2001), Falkner (2002), Hix(2002), Farrell and Héritier (2002).2 The seminal works by Steinmo et al. (1992) and Hall and Taylor (1996) point to those difficulties.

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THE CREATION, INTERPRETATION, AND CONTESTATION OF INSTITUTIONS

key to understanding subsequent institutional developments, such as the de-gree to which institutions are stable or contested, can be found in exploringthe linkage between them. In the second part of the article (Sections II andIII), we apply our theory to EU budgetary politics, one of the most understud-ied aspects of the EU. EU budgetary politics has suffered a remarkable de-gree of inter-institutional conflict since the revision of the Rome Treaties’budgetary provisions in 1970 and 1975. We begin by providing descriptivedata to show that the level of institutional contestation has been variable un-der different ‘institutional regimes’, and then employ primary sources fromextensive archival research to reconstruct the key actors’ preferences for al-ternative institutions. It is partly from these reformulated preferences that wesubsequently predict the level of institutional contestation.

Our empirical evidence shows that the institutional creation process wascharacterized by almost insurmountable tensions among the CommunityMember States regarding the role of the European Parliament (EP) in thebudgetary process. The new budgetary treaty, finally adopted in April of 1970,did not resolve these tensions, but sparked a wide range of different interpre-tations among the Member States as to perceived implications of the treaty.Tensions resurfaced in the institutional operation phase and led the actors inthe enacting coalition, most notably the Budget ministers in the Council andthe EP, ardently to debate and even contest the validity of the budgetary insti-tutions. These findings thus contribute to the theoretical debate on the rel-evance of ‘unintended consequences’ and the link between institutional crea-tion and operation. Moreover, they enrich our understanding of EU budgetarypolitics, which is still a largely under-researched area of the EU.3

I. Creating and Operating Institutions: Conflict and Stability

In this section, we separate the institutional creation and institutional opera-tion phases. In doing so, we shed light on potential tensions exhibited byinstitutional creations due to variation in actors’ action orientations in thecreation phase, that is to say whether they are driven by instrumental calcula-tions about the distributive effects of institutional choices, or by principledconsiderations relating to decisions regarding appropriateness based on pol-ity ideas (see Jachtenfuchs et al., 1998).4 Furthermore, we ask whether theactors involved in the ‘execution’ of the new institutions share a similar inter-pretation of the rules governing the institutional settlement. Do the actors in

3 With the important exception of the work by Laffan (1997, 2000), Laffan and Shackleton (2000), as wellas Begg and Grimwade (1998).4 These two logics of action are also frequently dubbed ‘logic of consequentialism’ and ‘logic ofappropriateness’ (see March and Olsen, 1989, 1998).



the ‘executing’ coalition coincide with those who brokered the institutionaldeal (the enacting coalition)? Under what conditions can we expect actors tocontest the new institutions?5

The Institutional Creation Phase

One key challenge faced by policy-makers in the construction and reform ofinstitutional orders is the so-called negotiator’s dilemma, which – in devisingor reforming institutional order – mirrors the collective search for a solutionthat leaves all participants better off, and a struggle to realize individual dis-tributive goals (Lax and Sebenius, 1986; Scharpf, 1997). This tension be-tween realizing the ‘common good’ and securing distributive gains from co-operation is a recurrent theme in the literature on institutional choice. Forexample, the literature on the making of the US Constitution is characterizedby a divide between scholars who argue that the delegates to the PhiladelphiaConvention created the US Constitution out of a commitment to general po-litical ideas and principles, and those who claim that the construction of theConstitution resulted from the Convention members’ wish to protect and pro-mote their social, political, and economic interests.6 Studying the motivationsof individual states at the 1787 Philadelphia Convention, Calvin Jillson ar-gues that both ‘philosophical and material concerns were at work’ (Jillson,1988, p. ix, emphasis in original; see also Jillson and Eubanks, 1984). Hedemonstrates that competing philosophical ideas were put forward in the de-sign of the Constitution’s fundamental institutions. One the one hand, thelikes of James Madison, Alexander Hamilton, James Wilson and GovernorMorris, who advocated a strong central government (nationalists), were in-spired by the Scottish enlightenment and advocated a new form of republi-canism. On the other hand, localists supported a more traditional version ofrepublicanism that centred on a ‘small republic vision’.

Yet, the pursuit of distributive goals was an equally important concern forthe Constitution-makers, especially when they voted on issues affecting thedistribution of power and influence within the new government institutions.When the representation of the individual states in the legislature was dis-cussed, for example, the smaller states preferred equal representation, whilethe larger states opted for proportional representation in the legislature. Dis-cussing different types of issues, therefore, produced variations in the statecoalitions that formed either around an ideological (pitting nationalists againstlocalists), or a material/distributional cleavage (pitting large versus small

5 We conceive of institutions as the ‘rules of the game’ and hence subscribe to their regulative function,e.g. institutions as enabling and constraining devices such as decision-making rules, laws etc. (see Scott,1995). We thus use the terms rules and institutions interchangeably.6 For a literature review, see Jillson (1988) and Jillson and Eubanks (1984).

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states). Such divisions are equally familiar in the EU. For example, thereweighting of votes in the Council, the number of Commissioners per Mem-ber State, or the number of seats in the EP per Member State divide states oneither side of a distributional rift that pits large against small. Questions re-garding the creation and enhancement of EP participation in the legislativeand in the budgetary process (see Section II) on the other hand, separate Mem-ber States on an ideological divide, pitting federalists against anti-federalists(Jachtenfuchs, 2002; Rittberger, 2001, 2003).

Jillson’s attempt to demonstrate empirically that political actors not onlycalculate the expected distributional consequences of alternative institutionsand rules, but are also guided by the prescriptive properties of shared beliefsabout ‘appropriate’ and legitimate institutions, has been supported at a theo-retical level by Vanberg and Buchanan. While most of the theoretical institu-tional choice literature sustains the divide between idea- and material inter-est-based explanations, Vanberg and Buchanan claim that ‘[h]ow a personchooses among potential alternatives is not only a matter of ‘what he wants’but also of ‘what he believes’, and for some kinds of choices an actor’s be-liefs or theories may play a most crucial role. We suggest that the secondelement is particularly important for constitutional choices, that is, choicesamong rules’ (Vanberg and Buchanan, 1989, p. 51). These authors distinguishbetween an interest component and a belief or theory component ‘in almostany choice’. They argue that the belief component – compared to most ordi-nary market choices – plays a particularly important role in constitutionalchoices because people’s beliefs or theories ‘about the working properties ofalternative rules or rule-systems, and not just their interests in expected out-comes, are of crucial relevance to their choice behaviour’ (Vanberg andBuchanan, 1989, p. 51). Returning to the Philadelphia Convention example,the ‘extended republic men’ (nationalists) and ‘small republic men’ (localists)held different beliefs or theories about the optimal scope of government. Whileconflicts of interest, such as the small v. large state dispute over representa-tion in the legislature, are characterized by distributive bargaining and theissuing of threats and promises, conflicts between alternative shared beliefsor theories are characterized by reasoning and arguing about the validity ofthe claims.7 Political actors constantly shift between these two levels of de-bate and conflict when establishing institutional orders, as demonstrated inexisting literature on the ‘constituent assemblies’, such as the PhiladelphiaConvention in 1787 (Jillson and Eubanks, 1984; Jillson, 1988; Elster, 2000),the Assemblée Constituante in Paris from 1789 to 1791 (Elster, 1994, 2000),

7 See, e.g., Elster (2000) and Risse (2000) for a distinction between ‘bargaining’ and ‘arguing’ modes inconstituent assemblies, and Risse (2000) for an application to diplomatic bargains in international politics.



and the deliberations that led to the creation of ‘Europe’s first constitutionalsystem’ (the supranational European Coal and Steel Community from 1950to 1951, see Rittberger, 2001).

A recent strand of research has explored the content and relevance of thevarious shared beliefs, or polity ideas, held by political actors in the construc-tion and reform of EU institutions. Jachtenfuchs and his colleagues definepolity ideas as ‘normative orders in which specific constructions of the legiti-macy of a political system are (re)produced through the ascription of purposeand meaning’ or, equally, as ‘convictions about the rightfulness of govern-ance shared by actors in the political system’ (Jachtenfuchs et al., 1998, p.413). Polity ideas ‘are not uniform or consensual but may differ widely amongdifferent groups or corporate actors, for … there are always contending struc-tures of meaning, and hence contending polity-ideas’ (Jachtenfuchs et al.,1998, p. 413). Using Vanberg and Buchanan’s terminology, polity ideas canthus be considered shared beliefs or theories about institutions that actorsconsider ‘appropriate’ and legitimate in the construction of a political order.To assess analytically the relative importance of interest- and ideas-basedaccounts for institutional choices, the researcher’s task is to divide phases innegotiations over institutions into two groups: those in which discussions aboutpolity ideas are paramount (i.e. where references among the political actors todistributional issues are infrequent or non-existent), and those in which dis-tributional issues are central to the discussion about the creation of institu-tions.

Can the preceding paragraphs tell us anything about the likelihood withwhich newly enacted institutions will be contested? We hypothesize that theenacting coalitions’ intended outcomes are most likely to be realized if dis-tributive concerns are dominant. Although arguably counterintuitive, the in-vestment made by actors in sharing actually ‘divisible’ spoils of co-operationis often so high that ‘unpicking’ the deal is likely to come at a very high cost.Where actors advance different or even conflicting polity ideas about theworking properties of alternative sets of institutions, we conjecture, these in-stitutions are likely to be much more open to interpretation and hence contes-tation. This point is underlined by Sutter, who argues that ‘[p]eople subscrib-ing to different ideological models may more readily agree on a single policyissue than on a set of rules to decide policies. Constitutional dialogue cannotcircumvent ideological differences’ (Sutter, 1998, p. 324). Equally, Elgströmclaims that conflicting shared beliefs or polity ideas are difficult to negotiatein the first place. He claims that negotiations about shared beliefs or polityideas are different from those of a distributive or redistributive character. Inthe former, ‘actors cannot be expected to concede on their principles, evenwhen faced with the most convincing and eloquent persuasive argument. They

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may, however, be prepared to concede on matters of implementation (“howand when”) and on the scope or applicability of [shared beliefs]’ (Elgström,2001, p. 3).

The link between the institutional creation and the institutional operationphase can thus be depicted as follows: enacted institutions are likely to be-come enmeshed in mutually contentious interpretations when actors in theenacting coalition are driven by conflicting polity ideas. Alternatively, as wehave argued, actors may remain vague about the practical applications of thenegotiated outcome if agreement will not be jeopardized. In contrast, if ac-tors’ preferences for institutions are driven by the expected policy outcomes,the hammering out of institutional rules is likely to be more specific; onceenacted, these rules are less prone to conflicting interpretations (see Rittberger,2001, pp. 677–85). This is not to say, as we will show in the next section, thatrules created under these conditions will be free from future contestation.One can expect, however, to observe ‘interpretative activities’ where institu-tional rule design is driven by opposing polity ideas or shared beliefs withinthe enacting coalition. We therefore derive a first proposition:

Proposition 1: When distributive concerns dominate actors’ prefer-ence profiles, they will be more inclined to press for a detailed andspecific institutional agreement limiting the scope for interpretation.However, when conflicting polity ideas dominate actors’ preferenceprofiles, they will be less able to specify the details of the rules gov-erning future interaction among the executing coalition. As a result,the potential for rule interpretation is likely to increase.

The Institutional Operation Phase

Rules adopted by the enacting coalition during the creation phase structureand frame interaction between actors of the executing coalition in the opera-tion phase. They influence outcomes and thus determine the distribution ofgains from institutionalized co-operation. As rules may be open to interpreta-tion, however, actors in the executing coalition participate post hoc in rulereformulation by interpreting them and by filling (perceived) gaps. The sepa-ration between institutional creation (‘games over rules’) and operation (‘gameswithin rules’) becomes blurred. Knight (1992) makes this point forcefully bydemonstrating that actors dissatisfied with the distributional outcomes inducedby institutional rules have an incentive to challenge the dominant applicationof rules by employing an alternative interpretation or by not ‘obeying’ thedominant one. Thus, games over outcomes are supplemented by a constantlysmoldering battle over rules and their interpretation.



Following Knight (1992, chs 2–3), we define ‘rule contesting behaviour’as an action taken by a member of the executing coalition geared towardschanging the dominant application of institutional rules.8 We assume that rulecontestation is an integral part of the institutional operation phase, occurringamong actors of the executing coalition. The likelihood of contestation, ac-cording to our main contention, is related to the institutional preferences (seeprevious section) and cost–benefit calculations of those party to the execut-ing coalition. The following paragraphs will focus in particular on the cost–benefit calculations of these actors.

Interpretation. Of the factors that influence the costs of contestation, therules themselves are one of the most important. Not only do they determinethe bargaining power of different actors, they also make contestation more orless costly depending on the degree to which they are perceived to be incom-plete or ill specified. The link between the creation phase is obvious: if actorsof the enacting coalition fail to resolve disputed institutional preferences andexpectations in the institutional creation phase, and if actors of the executingcoalition are excluded from the creation phase (and display ‘extreme’ prefer-ences from the perspective of at least one other member of the enacting coa-lition), a climate for rule contestation is created. The availability of differentinterpretations significantly reduces the cost of contesting rule applicationfor each actor. Deviation from expected behaviour and even disobedience canbe justified as a different – if not more ‘appropriate’ – interpretation of therules. The costs are even further reduced if there is no third party that arbi-trates between competing interpretations and/or enforces the dominant inter-pretation, and when the costs of non-agreement (the default position) are low.

Unity. The internal unity of the contending actor, as well as potential inter-nal divisions among the remaining actors of the executing coalition can re-duce the cost of contestation. The more unified a group of actors, the moreeasily it can pursue a contesting strategy. Similarly, if the group defending thedominant application of rules is divided, contestation is more likely to besuccessful. To elaborate more concretely as to the degree of an actor’s unity,however, we have to link this variable to actors’ time horizons.

Preferences and time horizons. The co-existence of conflicts over out-comes and institutions leads to a bargaining situation in the institutional op-eration phase that bears characteristics that vary greatly from those prevalentin the creation phase. On the one hand, the effects of institutional decisionson distributive outcomes become more visible in the institutional operationphase, and hence the uncertainty over the effects of institutional choices onoutcomes decreases. Institutional conflicts are settled differently from the crea-

8 It is, however, possible that there is no dominant interpretation of existing institutional rules and hencecontestation takes the form of tension between various competing interpretations.

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tion phase, because distributional and institutional outcomes can be tradedagainst each other. On the other hand, negotiations over distributive outcomescan directly affect the institutional negotiations. Often, institutional and dis-tributive tensions coincide directly; at other times, institutional gains entailshort-term losses on the distributive dimension. Therefore, actors with a longertime horizon are more likely to succeed institutionally, because they are will-ing to accept short-term distributive losses for long-term institutional gains(which will then, at a later stage, translate into a more beneficial distributionof benefits) (see also Knight, 1992; Stacey, 2001; Hix, 2002; and Farrell andHéritier, 2002).

Figure 1 illustrates in two dimensions the choice situation of an actor froma short-term oriented perspective. The point where the x-axis and y-axis inter-sect represents the status quo. The x-axis displays benefits and losses, forexample, in the form of more or less decision-making power (influence overoutcomes). The y-axis displays short-term distributional gains and losses, inthe form of direct monetary effects. The two axes describe a space of possibleoutcomes of institutionalized interaction between actors. Which would be ashort-term oriented actor’s preferred solution, compared to the status quo? Ashort-term oriented actor would presumably aim to realize those possible out-comes that produce distributive gains (quadrants I and II), and would engagein institutional conflict only when direct distributive gains were involved. Incontrast, an actor with a long-term orientation would concentrate almost ex-clusively on the institutional dimension and seek to realize outcomes depictedin quadrants II and III, knowing that short-term distributive losses would becompensated by future streams of distributive benefits resulting from institu-tional gains (Figure 2). We can thus conclude from this discussion that thereis a correlation between the length of actors’ time horizons and the likelihoodof a challenge to existing institutional provisions.9

Congruence between the enacting and executing coalition. Those actorsof the executing coalition who are not empowered to enact, or formally changerules, have a strong incentive to pursue institutional change in the operationphase. In contrast, members of the executing coalition who also participate inthe enacting coalition seem less inclined to use the arena of rule execution toeffect institutional change. Given that they have (shared) decision-makingpower to enact formal institutional change, these actors attempt to attain agree-

9 Hix (2002) argues, for example, that the discrepancy in time horizons between Member States in theCouncil and members of the EP (MEPs) leads to rule contestation given MEPs’ longer time horizons(MEPs are more willing to sacrifice short-term policy losses for long-term institutional gains, given thatthe EP’s institutional ‘ideal point’ is much further from the institutional status quo than that of the averageCouncil member) vis-à-vis the Member States in the Council. Hence, we argue that potential discrepanciesin time horizons affect the bargaining power of the actors in the executing coalition because they affectthe individual actors’ ‘breakdown value’.



Figure 1: Short-term Oriented Actor

Quadrant III

Quadrant IIQuadrant I

Quadrant IV

Short-term distributive lossesand benefits dimension

Institutional distributive lossesand benefits dimension

–

–

+

+

Figure 2: Long-term Oriented Actor

Quadrant III

Quadrant IIQuadrant I

Quadrant IV

Short-term distributive lossesand benefits dimension

Institutional distributive lossesand benefits dimension

–

–

+

+

ment among fellow members of the enacting coalition for formal rule change,rather than rely on contestation. In general, actors who are members of boththe enacting and executing coalition have an institutional incentive to fendoff rule contestation in the operation phase, ignited by actors who are onlymembers of the executing coalition, because actors of the enacting coalitionwant to minimize the rule-changing power of actors in the operation phaseand defend the exclusive position of the enacting coalition. Finally, reputa-tion may also be a tempering factor on members of the enacting coalition.

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Actors of the enacting coalition are limited in their ability to contest existingrules by the effect that rule disobedience may have on their reputation forfuture rounds of co-operation. Following the preceding discussion about thefactors that affect the likelihood of rule contestation (the ‘dependent vari-able’) in the institutional operation phase, we advance the following proposi-tions:

Proposition 2: The likelihood of institutional conflict is higher thestronger the incongruence between the composition of the enactingand the executing coalition and the more pronounced the differencein preferences among actors in the operation phase.

Proposition 3: The larger the scope of interpretation of the enactedinstitutions, the longer the time horizon and the stronger the internalunity of an actor in the executing coalition (in comparison to the timehorizon and unity of the other actors of the operation phase), the morelikely it is that an actor who is dissatisfied with the institutional set-ting will pursue preferences for institutional change and contest rules.

We subject these propositions to exploratory empirical testing in the sectionthat follows. In order to ensure variation on our dependent variables (institu-tional rule specification in proposition 1 and institutional rule contestation inpropositions 2 and 3) we analyse two phases of institutional creation and in-stitutional operation. Our dependent variables assume different values in eachphase. Through this inquiry, we seek to illustrate that our independent vari-ables affect the degree of institutional rule specification and institutional con-flict.

II. The Creation of Budgetary Institutions and Conflicting Polity Ideas

To understand the institutional creation of 1970 we must examine in greaterdetail the institutional preferences of the Member States (re)negotiating theTreaty (the enacting coalition) and their institutional choices. To shift frompreferences and outcomes in the institutional creation phase to the likelihoodof rule interpretation and contestation in the institutional operation phase, wesubsequently consider the preferences of the enacting coalition in the light ofthe institutional bargain.

Reforming the budget and the role of the European Parliament

When the question of institutional reform surfaced in the early 1960s, com-peting views on the Community’s finalité, as well as the question of whetherand how to strengthen Community institutions came to the fore. Two funda-



mentally distinct polity ideas informed the institutional preferences regardingEuropean integration of subsequent Gaullist governments under General deGaulle and, after 1969, Georges Pompidou on the one hand, and the vastmajority of political parties and governments of the five other CommunityMember States (Germany, Italy and the Benelux countries) on the other. De-bates over the Commission’s role and the involvement of the EP in Commu-nity decision-making, in particular, produced formidable clashes between twofundamentally opposed views of how Europe should be governed, a confederal-statist view held by the Gaullists who were in government at the time and afederal-dynamic view which enjoyed the (somewhat variable) support of theother Member States (of both parties in government and their most importantcontenders for governing power).

Where possible, we sought not to consult secondary sources, as these of-ten conflate preferences and strategies and hence provide poor information asto the real preferences of different actors (see Frieden, 1999; Moravcsik, 1998,pp. 77–85). We have assembled and analysed a multitude of primary archivaldiplomatic documents to trace the different actors’ institutional preferences.The ‘private’ statements from government officials and top-ranking civil serv-ants provide more reliable data to test our propositions than ‘soft’ primary orsecondary sources because the incentive for politicians to express false pref-erences ‘in private’ is much lower than in public arenas (see Moravcsik, 1998,p. 81). We are aware that the presentation of actors’ institutional preferencescan only be broadly outlined given the scope of this article. Lindner andRittberger (2001) provides a more detailed analysis of the actors’ preferences.

France and the Gaullists’ suspicion of supranationalism. Various internaldocuments from the French diplomatic service demonstrate the critical andreserved attitude of the French government vis-à-vis the role of the EP in arevised budgetary procedure.10 The arguments advanced by the Gaullists tojustify this reservation centre around three claims. First, the founding treatiesenvisaged a purely consultative assembly and hence it would be excessive toendow it with additional powers. Second, the Commission and the EP – byusing the pretext of democracy – would seek only to realize their own spend-ing preferences. Third, it would be excessive to endow the European ‘assem-bly’ with powers which correspond to, or are even more significant than thoseof national parliaments, which have a more ‘representative character’.11 The

10 HAEC, MAEF.DECE-05.02, MAEF 1124, 21 February 1964; HAEC, MAEF.DECE-05.02, MAEF1124, 26 February 1964, p. 2; HAEC, MAEF.DECE-05.02, MAEF 1124, 10 May 1965.11 HAEC, MAEF.DECE-05.02, MAEF 1124, 26 February 1964, p. 2; see also HAEC, MAEF.DECE-05.02, MAEF 1124, 10 May 1965; HAEC, MAEF.DECE-05.02, MAEF 1124, 10 May 1965; see alsoAAPD – 1970, 30 January 1970, No 30.

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French governments’ institutional preferences were thus tied firmly to theconception or polity idea of a Europe des états that restricted the govern-ment’s scope of institutional reform options drastically and ruled out delega-tion and pooling of sovereignty. During the Presidencies of de Gaulle andPompidou, who was in power by the time of the summit in the Hague (whichultimately put the Community budgetary procedure on the reform path), theseorientations remained unchanged. For the French government, progress inCommunity matters was possible only if it served the economic interests ofits farmers, hence the vehement call for a centralized financing scheme forthe common agricultural policy (CAP). The institutional preferences of theother Member State governments, however, turned CAP reform and the con-comitant reform of the Community’s budgetary procedure into strongly con-tested issues, inducing profoundly conflicting views as to the role the EP shouldplay in a reformed budgetary procedure that would endow the Communitywith own resources.

The bottom line of the argument advanced by the other five governmentswas that, with the subsequent transfer and sharing of competences, the Euro-pean institutions had to ‘catch up’ in the face of a system of Council domina-tion. In the different Member States, the desire to strengthen the EP was voicedin various parliamentary debates and resolutions (Niblock, 1971, pp. 85–7).Diplomatic documents from the German federal government, for example,show that the government’s general foreign policy objectives were driven bya federal Leitmotiv,12 or polity idea. Enhancing the powers of the EP andholding direct elections were essential parts of this polity idea. Even con-fronted with the ‘empty chair crisis’, the ‘Five’, the Italian, German and Dutchgovernments in particular, continued broadly to support the idea that furtherintegration had to go hand-in-hand with the strengthening of the EP’s powers.The French government, however, insisted that the inclusion of the EP in thebudgetary procedure be limited to a minimal level, and only to the extent thatthis inclusion did not upset the overall institutional balance. The Gaullistsadvanced arguments to limit the role of the EP that resonated with their viewson a Europe des états, while other Member States’ views about the govern-ance of Europe prompted them to support the creation of a more influentialEP.

Bargaining over Conflicting Polity Ideas

The previous section indicated that a Member State coalition pressed for moreparliamentary powers throughout the 1960s. However, the bargaining lever-age of this coalition was too limited successfully to ‘drag’ the French Gaullists

12 AAPD – 1963, 17 July 1963.



to the bargaining table and renegotiate the role of the EP in Community deci-sion-making. The reform of CAP financing, which was a key issue in Frenchdomestic politics, opened up a venue through which the alleged ‘logical’ linkbetween the creation of own resources to lock in a permanent CAP financingscheme and an increase in the powers of the EP could be firmly establishedand pushed through. Pressure directed at France and exercised by the otherMember States was aimed at the acceptance of the ‘logic’ that the creation ofown resources produced an ‘accountability gap’ (given the loss of nationalparliaments’ control over a substantial part of the budget and the lack of com-pensatory mechanisms for this gap at the Community level), which couldonly be remedied by increasing the budgetary powers of the EP. During thenegotiation that followed the summit meeting in the Hague in December 1969,the idea of altering the role of the EP was accepted in principle, although itwas not yet clear how this would materialize: divergent polity ideas regardingthe EP’s role in a reformed budgetary treaty allowed for no simple solution tothe negotiations. As we have argued above, the consequence could well havebeen no agreement at all, or the adoption of different interpretations as to theactual meaning of the newly enacted rules.

Given the pressure to come to an agreement over the CAP (which washighly valued by France) and the prospective UK enlargement (which washighly valued by the other ‘Five’), the Member State delegations could notafford to fail over the issue of parliamentary involvement in the reformedbudgetary procedure. Following various bilateral and Council meetings, acompromise emerged, despite profound doctrinal divisions. Whereas policy-makers, most notably the French Foreign Affairs Minister, Maurice Schumann,and Valéry Giscard d’Estaing in the finance ministry, referred to ‘technicaldetails’, the battle over EP influence in the budgetary procedure more accu-rately mirrored a fierce ‘ideological battle’ about how the Community polityshould be organized.13

The Council came up with a compromise in February 1970, the most promi-nent part of which was a distinction between administrative expenses (non-compulsory expenditure), which would make up roughly 4 per cent of thetotal budget, and compulsory expenditure, flowing directly from the Treatyand to which third parties had legal claims. This compromise had two othercrucial facets. First, under French pressure, the Council scrapped the EP’sability to increase the overall amount of expenditure with the introduction ofthe distinction between compulsory and non-compulsory expenditure, whichreduced EP influence to roughly 4 per cent of the overall budget (non-com-pulsory expenditure). Second, the Member States ensured that the size of theCommunity budget would remain largely under the Council’s control (see

13 Agence Europe, 21 January 1970, p. 1.

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Pollack, n.d., p. 167). What were the consequences of this compromise forthe operational phase of the revised budgetary treaty? Given the battle overthe role of the EP, we would expect diverging interpretations advanced byboth the signatories and also those actors party to the executing coalition,most notably the EP.

Institutional Preferences in a Divided Executing Coalition

The Belgian Presidency’s representation of the compromise elaborated bythe Council revealed that – given competing polity ideas – the Council wasunable to agree on detailed treaty provisions, or a common interpretation ofthe rather vague compromise that could satisfy different normative orien-tations.14 The French Gaullists rationalized and justified the institutional crea-tion before the Assemblée Nationale by claiming that they had managed tokeep the ‘balance of power’ intact and had closed every possible avenue toincreased supranationality. In stark contrast to the debate in the French Par-liament, the other negotiating parties of the enacting coalition referred to theprovisions as if they were part of an entirely different document. Vast majori-ties of the other national parliaments had been in favour of a ‘real’ strengthen-ing of the EP’s role in the budgetary procedure.

We have argued previously that one factor fuelling conflict in the institu-tional operation phase can be a product of the composition of the enactingcoalition. Yet, we have also claimed that the composition and preferences ofthe executing coalition that applies and interprets the institutional rules play acrucial role in accounting for institutional rule contestation. Given that the EPwas to become part of the executing coalition, it is therefore necessary toconsider its preferences on the issue of budgetary treaty reform. EP activitiesleading to the adoption of the Luxembourg Treaty are well documented andwill not be repeated at length here.15 Numerous committee reports and parlia-mentary debates maintained that a reform of the Community’s financing sys-tem had to go hand-in-hand with an increase of the Parliament’s budgetarypowers. The EP’s criticism of the new treaty provisions concerned, in par-ticular, the distinction between compulsory and non-compulsory expenditurethat limited its potential to influence expenditure allocation to a minimal pro-portion of the budget. The vast majority of MEPs passed a resolution statingnot only the EP’s general disappointment with the provisions adopted, butalso its intention ‘to do something about it’. The resolution did more thansimply claim the right of the ‘last word’, as well as the right to reject thebudget as a whole in order to provoke a new draft budget, a right so vehe-

14 Journal officiel des Communautés européennes, séance du 13 mai 1970.15 See European Parliament (1970). The following elaborations are based on this collection of documents.



mently denied by the French. The resolution also stipulated that the provi-sions adopted by the Council could not be considered ‘intangible’, as theyonly marked the beginning of an evolutionary period within which the EPwould see a further extension of its powers.

III. Consequences of Enacting a Vague Treaty

The new budgetary procedure quickly became the battlefield for fierce insti-tutional conflict between the EP and the Council. As shown above, differ-ences in the polity ideas held by the different Member States during the crea-tion phase had resulted in a treaty that was poorly specified and hence al-lowed for competing interpretations. As a result, the EP faced ample opportu-nities to contest the treaty provisions. The budgetary procedure became thekey lever with which the EP increased its political weight in Community de-cision-making. Although a number of governments had, during the negotia-tions over the 1970 Treaty, endorsed the empowerment of the EP, their fi-nance ministers in the Budget Council now rejected the extensively pro-EPinterpretations that MEPs forcefully advanced. Not surprisingly, inter-insti-tutional conflict was soon to loom large. Observers in the 1980s spoke of‘institutionalized conflict’ in budgetary politics – referring to the fact that,from the late 1970s, conflict was deeply entrenched in the annual budgetaryprocedure (Läufer, 1981).

In the first part of this section, we illustrate the dominance of conflict byreferring to the negotiations over the 1979 budget. This provides a good casein point because, as the first budget where tensions escalated, it already con-tained all of the key characteristics of conflict that were to dominate the yearsthat followed. As Figure 3 reveals, the value of the dependent variable (thelevel of institutional rule contestation) is high throughout the 1979–88 periodrelative to the period thereafter. The institutional reform of 1988 remarkablyreduced the level of inter-institutional conflict.16 Hence, to explain this vari-ation in the level of the dependent variable, the 1988 reform provides us withan interesting second case through which to subject our propositions to ex-ploratory testing.

16 Conflict has been operationalized by employing the following indicators: actors’ inability to abide bythe budgetary timetable as laid down in the Treaty (including the enactment of the 1/12 rule), actions takenbefore the European Court of Justice, rejection of the general budget or a supplementary and amendingbudget by the EP, and Member States’ refusal to pay their share of the enacted budget (see Lindner, 2000).

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The 1979 Budget

The 1979 budget was the first budget in which institutional conflict played adominant role in budgetary decision-making.17 Although actors had alreadyexperienced some inter-institutional tensions since the introduction of the newbudgetary procedure in 1974, the 1978 negotiations led to an intensive clashof competing interpretations of the treaty provisions. During the procedure,Parliament found itself in a position that allowed it to capitalize institution-ally on a gap in the Treaty. This gap had gained relevance because the Coun-cil was internally divided over its distributive objectives. In its second read-ing of the budget, the Council had failed to assemble the necessary majorityfor rejecting a parliamentary amendment that allowed for significant increasesin the regional fund. Three Member States with strong distributive interestsin regional policy had refused to reject the amendment. At the same time, theCouncil was unable to muster a qualified majority for adjusting the maximumrate of increase of non-compulsory expenditure accordingly. The EP couldtherefore argue that the Council had implicitly increased the maximum rateby failing to reject the amendment. Although the Council strongly contestedthis interpretation of the Treaty, the EP pursued its strategy and was sup-ported by the Commission, which decided to implement the budget as adoptedby the EP. Only a supplementary budget adopted in June 1979 settled thedispute over the 1979 budget between the Council and the EP. Yet, the differ-

17 Accounts of the budgetary procedure for the 1979 budget can be found in Strasser (1979), Sopwith(1980, pp. 335–40), Bangemann (1979) and Isaac (1980, pp. 325–34).

4

3

2

1

0

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

Budget for the following financial year

Me

asu

re o

f co

nfli

ct

Figure 3: Cumulative Measure of Institutional Conflict Between 1974 and 1999(Procedures for the 1975 Budget up to the 2000 Budget)



Table 1: The Annual Budgetary Decision-making Procedure and the Adoption Proc-ess for the 1979 Budget

Annual Budgetary Procedure Adoption Process of the 1979 Budget

Year: Commission prepares Commission proposed significant increases in NCEa

t–1 preliminary draftbudget

First reading in the The Council reduced NCE significantlyCouncil: Counciladopts draft budget

First reading in the EP: EP reinstated Commission proposals and raisedEP tables amendments NCE. It threatens the Council with a rejectionto NCE and of the overall budgetmodifications to CEb

Second reading in the The Council had neither a majority for rejecting anCouncil: Council increase of the regional fund, as proposed by the EP,adopts CE and nor a majority to adjust the maximum rate ofvotes on NCE increase accordingly

Second reading in the The EP adopts the budget, interpreting the Council’sEP: EP votes on NCE failure to reject the EP’s proposal as an implicit(within the maximum increase of the maximum raterate of increasec) andadopts/rejects theoverall budget

Year: Commission implements The Commission implements the budgets despitet the budget legal doubts and resistance from some Member

States

Council and EP agree on a supplementary budgetthat ex ante ‘legalizes’ Parliament’s adoption. TheEP does not support Commission proposals for afurther increase in the regional fund in order topreserve the compromise with the Council

Source: EC Treaty, EC Bulletin for 1978 and 1979, and Strasser (1979).Notes: a NCE = Non-compulsory expenditure. b CE = Compulsory expenditure.c Maximum rate of increase = a percentage of the non-compulsory expenditure of the current year thatindicates the upper limit of increase of the non-compulsory expenditure of the coming year. TheCommission calculates it on the basis of indicators that are given in the Treaty. It can be modified bya joint agreement between the EP and the Council.

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ences over the treaty interpretation remained. Table 1 presents an overview ofthe annual procedure and the adoption process of the 1979 budget.

The Sea Change of 1988

1988 marked a turning point in EC budgetary politics. A large-scale distribu-tive and institutional reform, initiated by the Commission President under thelabel ‘Delors I’ package, triggered a period during which the level of inter-institutional conflict was markedly reduced (as depicted in Figure 3 above).On the distributive dimension, a multi-annual budget plan, called a financialperspective, entailed a doubling of regional spending (for a period of fiveyears) and the introduction of new own resources to fund this increase. Withregard to the institutional dimension, the financial perspective set annual rev-enue and expenditure ceilings, as well as upper limits for the main categoriesof the budget. An inter-institutional agreement between the Council, the Com-mission and the EP committed the three institutions to comply with the multi-annual budget plan and specified its relevance for the annual budgetary pro-cedure. The financial perspective and the inter-institutional agreement weresuccessfully renewed in 1992–93 and 1999.18

Although the new institutional framework did not replace, but merely sup-plemented, the treaty provisions, its impact was nevertheless decisive.19 Theagreement emerged from the desire to improve the specificity of rules gov-erning the budgetary decision-making process by introducing a new systemof rules, adopted by an enacting coalition that differed from that of the initialtreaty reform in 1970, and by introducing a specified procedure for futurerule change. Although the reform did not completely eliminate institutionalconflict between the two arms of the budgetary authority, it achieved its ob-jective and reduced the level of conflict considerably by limiting the impactof vague treaty provisions. As ceilings were set, the maximum rate of in-crease lost its importance. Similarly, the distinction between compulsory andnon-compulsory expenditure became less relevant. In giving its consent tothe financial perspective, the EP was included in the decision over the overallexpenditure distribution (and indirectly in the decision over revenue). Moreo-ver, the new multi-annual budget plan increased non-compulsory expendi-ture above the treaty rate of increase, and it gave the EP an important distribu-tive security: the amounts entered for regional policy constituted spending

18 The successful renewals of the financial perspective and the inter-institutional agreement underlinedthe institutional character of the reform, which transcended the distributive dimension of the respectivemulti-annual budget plan.19 The inter-institutional agreement was ‘soft-law’ and its ‘binding-ness’ was thus dependent on thepolitical willingness of the actors to comply.



targets and the ceiling on agricultural spending limited expansion at the ex-pense of non-compulsory expenditure. The distributive motivation for insti-tutional conflict lost relevance as the benefits of contestation decreased, be-cause possible institutional gains would no longer bring with them such strongdistributional consequences.

This period, therefore, differs from the pre-1988 era in that contestationposed a far greater risk; radical challenges to the rules were likely to obliter-ate the inter-institutional agreement. This would have resulted in a return tothe Treaty and the loss of a guaranteed budget above the maximum rate ofincrease – an unattractive option for the EP! In contrast, prior to the 1988negotiations, the EP always had an incentive to contest the rules because theEP had nothing to lose. In the eyes of MEPs, a situation of continuing uncer-tainty over the dominant interpretation of rules was preferable to giving in tothe Council’s interpretation of treaty provisions. Most importantly, the inter-institutional agreement made the EP a member of the enacting coalition. In-tense institutional debates were limited to the occasions on which, at the endof a multi-annual period, the framework was to be renegotiated and the EP, asa member of the enacting coalition, had a full say in the provisions of a newinter-institutional agreement. During these negotiations, the EP traded dis-tributive concessions against institutional gains. As the Council did not wantto reopen the multi-annual budget plan agreed between heads of governments,the EP had the bargaining power to push for institutional concessions.

IV. Discussion: Assessing the Explanatory Power of the Theory

The evidence presented provides ample support for the propositions elabo-rated in Section I. With regard to the institutional creation phase, we havedemonstrated that the key actors in the treaty reform process held differentpolity ideas concerning the role of the EP in the new budgetary procedure.Given the stark differences displayed by the Gaullist government and the ‘Five’with regard to the role of the EP, a compromise was not only hard to find, butwas also subject to conflicting interpretations. Each of the national govern-ments sought to square the institutional provisions with their interpretation ofthe ‘parliamentary democracy’ norm. We can thus conjecture, in line withproposition 1, that the presence of these conditions led to an ill-specified treatydocument, open to interpretation (low institutional rule specification). In ad-dition, particularly given the ‘extreme’ institutional preferences of the EP, itwas to be foreseen that the document would be contested (pending the valueof the independent variables affecting institutional rule contestation). The 1979budget and empirical support provided by subsequent budget procedures inthe 1980s, allow us to assess the values of variables central to propositions 2

465



and 3 and, hence, to illustrate the link between the phases of institutionalcreation and operation:

Incongruence of enacting and executing coalition. Excluding the EP fromthe enactment of the 1970 Treaty proved to have weighty consequences forthe subsequent level of rule contestation. Not being a member of the enactingcoalition, the EP did not feel bound by a specific treaty interpretation. Buteven within the Council, the change from the European Council and the For-eign Affairs Council, which had negotiated the Treaty, to the Budget Councilstrained inter-institutional relations, as it strengthened the emphasis on dis-tributive preferences and marginalized Council voices in favour of strength-ening the EP. Although five national governments had been supportive of astrong EP, they were very reluctant to give in to the far-reaching interpreta-tions put forward by the EP in the operation phase (even if they sympathizedwith it). They had an institutional interest in keeping the power of treaty changeand rule enactment in the intergovernmental realm.

Differences in preferences and time horizons between the actors of theexecuting coalition. Differences in institutional and distributive preferencesbetween actors of the executing coalition played an important role in incitinginstitutional conflict. The EP’s distributive preferences were based on an in-terest in expanding the redistributive dimension of the European level, and inrealizing specific policy preferences. In order to attain these objectives, Par-liament sought to increase its budgetary powers. Although the short-term dis-tributive and long-term institutional gains mostly coincided, the EP disci-plined itself at points and did not opt for distributive success where it endan-gered institutional gains (as, for example, in the vote on the supplementarybudget in June 1979 – see Table 1).

The preferences of the Budget Council and its time horizon differed sig-nificantly from that of the EP. Delegates from the national finance ministrieswere short-term oriented. They were mainly concerned with keeping theircountries’ annual contributions low and expanding only those expendituresthat brought direct benefits to important national constituencies. The BudgetCouncil’s institutional preferences were closely linked to its distributionalpreferences: the majority of Member States were anxious not to lose deci-sion-making power to a Parliament that was seen to be taking an excessivespending approach towards the budget (although see Unity below).

Large areas of interpretational differences. The ambiguity of the treatyprovisions helped to ensure a high incidence of institutional conflict in budg-etary politics, as it gave actors with competing polity ideas ample opportunityto interpret these provisions in a conflicting manner.



Unity: The EP was able to contest the Council’s interpretation because itpossessed a high degree of internal unity. Unity was necessary because of thethree-fifths majority rule for plenary decisions. As distributive tensions inParliament were more pronounced than institutional ones, institutional con-flict fulfilled an important function in unifying Parliament.20 The Budget Coun-cil was greatly weakened by distributive differences. The EP was repeatedlysupported by Member States that opted for individual short-term distributiveinterests, rather than the long-term institutional interests of the Council. Suc-cessive enlargements undermined the austerity camp and strengthened de-mands for regional redistribution.21 Moreover, the Budget Council had to ac-cept the interference of other Councils, most importantly the AgriculturalCouncil and the European Council. This meddling weakened the stance of theBudget Council and made it difficult to contain the confrontational strategiesof the EP.

Furthermore, the success of the 1988 reform provides further support forour propositions. The level of institutional conflict (the dependent variable)decreased because the EP became part of the enacting coalition, the institu-tional reform reduced the scope for competing interpretations, the time hori-zon of both actors was synchronized, and the internal unity of the EP de-creased due to the declining importance of the institutional dimension of budg-etary politics. Moreover, the institutional creation of the financial perspectivediffered significantly from that of the 1970 budget treaty. Actors of the enact-ing coalition shared the same norm of multi-annual planning, which served asa focal point for framing a formerly agreed distributive consensus. The rulesof the financial perspective were therefore clearly defined and specified. Ta-bles 2 and 3 summarize our empirical findings and link them to the proposi-tions.

20 For the annual budgetary procedures, the Budget Committee and the Agricultural Committee had anagreement that both sides would not interfere with each other (Misch, 1987). Budget experts accepted theprice recommendations by the Agricultural Committee in the votes of agricultural prices in spring, whilethe agricultural lobby in the EP supported the budget in the budget votes in autumn.21 Yet, on the institutional dimension, disunity also played a role (reflecting the original divide during theenacting phase). In the 1979 budget procedure, for example, the Dutch delegation rejected calls from theFrench delegation to introduce an internal rule for Member States that prohibited the acceptance ofparliamentary amendments when they exceeded the maximum rate of increase.

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Table 2: Creation and Operation of the 1970 Budget Treaty

Institutional Creation Phase – 1970 Budget Treaty

Independent VariablePolity ideas or France: institutional preferences inspired by the polity idea of Europe des étatsdistributive and distributive concerns (CAP)concerns? The ‘Five’: institutional preferences informed by the polity idea of a federal

Europe

Dependent VariableRule specification Open treaty provisions/high potential for rule interpretation

Institutional Operation Phase – 1974–87

Independent VariablesCongruence New representatives: Budget Council replaced European Council and

General Affairs CouncilNew actor: European Parliament

Preferences Budget Council: short-term orientation towards distributive objectives;institutional status quo preferenceEP: long-term orientation towards institutional objectives; expansionistspending interest

Interpretation Conflicting preferences over open treaty provisionsUnity Budget Council: split over distributive objectives

EP: united over institutional objectives

Dependent VariableRule contestation High level of rule contestation

Table 3: Creation and Operation of the 1988 Inter-institutional Agreement

Institutional Creation Phase – 1988 Inter-institutional Agreement

Independent VariablePolity ideas or All actors: distributive concerns dominatedistributiveconcerns?

Dependent VariableRule specification Set of closed rules supplements the treaty/low potential for rule

interpretation

Institutional Operation Phase – 1988–99

Independent VariablesCongruence Congruence between enacting and executing coalitionPreferences Convergence towards long-term orientation, but differences in institutional

preferences remainInterpretation Limited scope for interpretation of institutional agreementUnity Budget Council: more united on distributive front

EP: less united on the institutional front

Dependent VariableRule contestation Low level of rule contestation



Conclusion

The findings presented in this article allow us to assess the explanatory valueof some of the instruments of historical institutionalism. Our approach to his-torical institutionalism calls into question two key concepts in this theoreticalstrain – unintended consequences and exogenous shocks – to the degree thatthey may become superfluous under the conditions elaborated in this article.

Unintended Consequences

A brief review of the logic behind the institution-building efforts of the enact-ing coalition suggests that, even if actors in the creation phase had possessedfull information about the consequences of their institutional choice, theymight not have embarked on a different course of action. Given the variationin institutional preferences among members of the enacting coalition, no othercompromise may have been feasible in reality. Actors in the creation phaseopted for ambiguous provisions and left space for interpretation, seeing suchambiguity as the only way to reconcile different institutional preferences. Theyaccepted that this strategy had the potential to create tensions in the opera-tional phase – postponing the decision to introduce ‘own resources’ over thedisagreement of the role of the EP was simply considered too costly.

Conflict-laden Institutions Instead of Exogenous Shocks

We have also cast doubt on the familiar claim, invoked simultaneously bysome historical institutionalists and their critics, that events exogenous to theresearch design (such as ‘critical junctures’) induce ‘punctuated equilibria’and thus lead to institutional change and reformulation. Instead, we have ar-gued that the budgetary institutions of 1970 were subject to severe contesta-tion and, ultimately, to institutional change that was not prompted by someexogenous event. On the contrary, we have sought to endogenize institutionalconflict and rule contestation by emphasizing the importance of analysingactor preferences and constellations at the moment of institutional design ef-forts (see also Schickler, 2001). Although we do not deny that exogenousfactors may affect the functioning of institutions, we posit that institutionalanalyses that fail to ‘go back and look’ (Pierson, 1996) are prone to miss anessential part of a comprehensive explanation of why institutions, once en-acted, appear dysfunctional or even self-destructing (see Greif, 2002).

The European Union has often been characterized as an ‘unfinished’ con-stitutional system whose evolution has not only been fuelled by functionaldemands to overcome collective action problems, but also by different polityideas concerning appropriate governance structures. Examining the present

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debate about the ‘Europe 2004’ project, scheduled to culminate in the adop-tion of a European Constitution, from the vantage point of the argument pre-sented in this article, we are likely to observe fundamental differences on thelevel of polity ideas. More importantly, the degree to which these polity ideastranslate into the creation of institutional rules and decision-making proce-dures, and the degree to which actors in prospective executing coalitions areincluded in the constitution-writing process, will fundamentally affect theextent to which any future European constitution is accepted. The ‘method’of the Convention on Europe, chaired by Valéry Giscard d’Estaing and com-prising members of the EP, national parliaments and the Member State ex-ecutives, is therefore to be welcomed. However, if the Convention’s proposalfor a European Constitution do not bind the Member State governments, thefate of any European Constitution could resemble that elaborated by the adhoc Assembly for a European Political Community in the 1950s. Or it couldresult in ongoing inter-institutional conflicts, which recur amidst disagree-ment over how Europe should be governed.

Correspondence:Johannes LindnerNuffield CollegeOxford OX1 1NF, EnglandTel: (+44) 0 1865 278500email: [email protected]

Berthold RittbergerMannheimer Zentrum fur Europäische Sozialforschung (MZES)Arbeitsbereich B, L7, 168161 Mannheim, GermanyTel: 00 49 621 181 2846 Fax: 00 49 621 181 2845email: [email protected]

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