Comparative European Politics

, Volume 7, Issue 4, pp 455–475 | Cite as

Reforming EU economic governance: A view from (and on) the principal-agent approach

  • Dermot Hodson
Original Article


This paper asks what European Union (EU) economic governance can learn from the principal-agent approach and vice versa. The answer to the first part of this question is that a stylized relationship between the Council of Ministers for Economic and Financial Affairs (ECOFIN) acting as a collective principal and the Member States acting as multiple agents can shed light on factors that may have influenced the design, breakdown and subsequent reform of the Stability and Growth Pact and the Lisbon Strategy. The answer to the second part is that applying principal-agent analysis to EU economic governance illustrates many of the advantages and limitations of this heuristic device. On the plus side, it shows that principal-agent analysis can be used to understand new modes of EU governance as well as traditional forms of supranational policy making. On the minus side, the sheer applicability of this approach raises methodological concerns with regard to the specification and over-determination of principal-agent relationships.


principal-agent EU economic governance Stability and Growth Pact Lisbon Strategy 



Thanks to Joost Kuhlmann, Imelda Maher, Stijn Billiet and an anonymous referee for constructive comments. An early version of this paper was presented at a conference on ‘The Political and Economic Consequences of European Monetary Integration’ at the University of Victoria in August 2005. Thanks to the conference organizer, Amy Verdun, and my discussant, Patrick Crowley. The usual disclaimer applies.


  1. Campanella, M.L. and Eijffinger, S. (eds.) (2003) EU Economic Governance and Globalization. Cheltenham, UK: Edward Elgar.CrossRefGoogle Scholar
  2. Collignon, S. (2008) The Lisbon strategy, macroeconomic stability and the dilemma of governance with governments; or why Europe is not becoming the world's most dynamic economy, International Journal of Public Policy 3 (1–2): 72–99.Google Scholar
  3. Council of Ministers. (2003) The 2546th Council Meeting. Luxembourg. 25 November 2003, Press Release no. 14492/1/03 REV 1.Google Scholar
  4. Deroose, S., Hodson, D. and Kuhlmann, J. (2008) The broad economic policy guidelines: Before and after the re-launch of the Lisbon strategy. Journal of Common Market Studies 46 (4): 827–848.CrossRefGoogle Scholar
  5. Deroose, S. and Langedijk, S. (2003) Economic Policy Coordination in EMU: Accomplishments and Challenges. In: M. Buti and A. Sapir (eds.) EMU and Economic Policy in Europe: The Challenge of the Early Years. Cheltenham, UK: Edward Elgar, pp. 205–227.Google Scholar
  6. Elgie, R. (2002) The politics of the European central bank: Principal – agent theory and the democratic deficit. Journal of European Public Policy 9 (2): 186–200.CrossRefGoogle Scholar
  7. European Commission. (2002a) Co-Ordination of Economic Policies in the EU: A Presentation of Key Features of the Main Procedures. Brussels: European Commission. Euro Papers, no. 45.Google Scholar
  8. European Commission. (2002b) Communication from the Commission to the European Parliament and the Council on the Need and the Means to Upgrade the Quality of Budgetary Statistics. COM(2002) 670 final, Brussels. 27 November 2002.Google Scholar
  9. European Commission. (2002c) Strengthening the Co-Ordination of Budgetary Policies. Communication from the Commission to the Council and the European Parliament, COM(2002) 668 final, Brussels. 27 November 2002.Google Scholar
  10. European Commission. (2004a) Commission sets Out Strategy for Economic Policy Coordination and Surveillance. IP/04/35, Brussels. 13 January 2004.Google Scholar
  11. European Commission. (2004b) Public Finances in EMU. European Economy, No. 3, Luxembourg: Office for Official Publications of the EC.Google Scholar
  12. European Commission. (2004c) Working Together for Growth and Jobs – A New Start for the Lisbon Strategy: Communication to the Spring European Council. COM (2005) 24, Brussels. 2 February 2005.Google Scholar
  13. European Commission. (2005) Public Finances in EMU. European Economy, No. 3, Luxembourg: Office for Official Publications of the EC.Google Scholar
  14. European Commission. (2006) Public Finances in EMU. European Economy, No. 3, Luxembourg: Office for Official Publications of the EC.Google Scholar
  15. European Council. (2000) Presidency Conclusions. Lisbon European Council 23– 24 March, Press Release: 100/1/100, Lisbon. 24 March.Google Scholar
  16. European Council. (2005) Presidency Conclusions. Press Release 7619/05, Brussels, 23 March 05.Google Scholar
  17. European Court of Justice. (2004) Judgment of the Court of Justice in Case C-27/04 Commission/Council. Press Release: 57/2004, 13 July 2004.Google Scholar
  18. Feldstein, M. (2005) The Euro and the Stability Pact. National Bureau for Economic Research Working Paper no. 11249.Google Scholar
  19. Hallerberg, M. (2004) Institutions and Fiscal Performance. Domestic Budgets in a United Europe: Fiscal Governance from the End of Bretton Woods to EMU. Ithaca, NY: Cornell University Press.Google Scholar
  20. Hix, S., Noury, H. and Roland, G. (2007) Democracy in the European Parliament. Cambridge: Cambridge University Press.Google Scholar
  21. Hodson, D. and Maher, I. (2001) The open method as a new mode of governance: The case of soft economic policy co-ordination. Journal of Common Market Studies 39 (4): 719–746.CrossRefGoogle Scholar
  22. Kassim, H. and Menon, A. (2003) The principal-agent approach and the study of the European Union: Promise unfulfilled? Journal of European Public Policy 10 (1): 121–139.CrossRefGoogle Scholar
  23. Khan, M.S. and Sharma, S. (2001) IMF Conditionality and Country Ownership of Programs. IMF Working Papers 01/142.Google Scholar
  24. Kok, W. (2004) Facing the Challenge The Lisbon Strategy for Growth and Employment. Report from the High Level Group chaired by Wim Kok, Scholar
  25. Lyne, M.M., Nielsen, D.L. and Tierney, M.J. (2006) Who Delegates? Alternative Models of Principals in Development Aid. In: D.G. Hawkins, D.A. Lake, D.L. Nielsen and M.J. Tierney (eds.) Delegation and Agency in International Organizations. Cambridge: Cambridge University Press, pp. 41–76.CrossRefGoogle Scholar
  26. McCubbins, M.D. and Schwartz, T. (1984) Congressional oversight overlooked: Police patrols versus fire alarms. American Journal of Political Science 28: 165–179.CrossRefGoogle Scholar
  27. Moe, T.M. (1984) The new economics of organization. American Journal of Political Science 28 (4): 739–777.CrossRefGoogle Scholar
  28. Pollack, M.A. (1997) Delegation, agency and agenda setting in the European community. International Organization 51 (1): 99–134.CrossRefGoogle Scholar
  29. Pollack, M.A. (2003) Engines of European Integration: Delegation, Agency and Agenda Setting in the EU. Oxford: Oxford University Press.CrossRefGoogle Scholar
  30. Pollack, M.A. (2007) Principal-Agent Analysis and International Delegation: Red Herrings, Theoretical Clarifications, and Empirical Disputes. College of Europe. Working Papers, February 2007.Google Scholar
  31. Ross, S. (1973) The economic theory of agency: The principal's problem. American Economic Review 12: 134–139.Google Scholar
  32. Sapir, A. et al (2004) An Agenda for a Growing Europe: The Sapir Report. Oxford: Oxford University Press.Google Scholar
  33. Schelkle, W. (2005) The political economy of fiscal policy co-ordination in EMU: From disciplinarian device to insurance arrangement. Journal of Common Market Studies 43 (2): 371–391.CrossRefGoogle Scholar
  34. Schuknecht, L. (2004) EU Fiscal Rules: Issues and Lessons from Political Economy. European Central Bank Working Paper no. 421.Google Scholar
  35. Tallberg, J. (2002) Delegation to supranational institutions: Why, how, and with what consequences? West European Politics 25 (1): 23–46.CrossRefGoogle Scholar
  36. Thatcher, M. and Stone Sweet, A. (2002) Theory and practice of delegation to Non-Majoritarian institutions. West European Politics 25 (1): 1–22.CrossRefGoogle Scholar
  37. Verdun, A. and Christiansen, T. (2000) Policies, Institutions and the Euro: Dilemmas of Legitimacy. In: C. Crouch (ed.) After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union. Oxford: Oxford University Press, pp. 162–178.CrossRefGoogle Scholar

Copyright information

© Palgrave Macmillan 2009

Authors and Affiliations

  • Dermot Hodson
    • 1
  1. 1.School of Politics and Sociology, Birkbeck College, University of LondonLondonUK

Personalised recommendations