Special issue "European Integration - Between Nation and Federation" The following articles were published in this special issue of Aussenwirtschaft. Part I: Integration Theory between Nation and Federation Legitimacy: The Missing Link for Explaining EU-Institution Building Heinz Hauser und Alexia Müller In this article shall the legitimization problems of the EU be shown in order to prepare consciously the institutional reforms of 1996. The organization of the EU is as well intergovernmental as supranational, this is why the European integration does not correspond to any traditional integration theory. The main problem is in the distribution of competencies between the national and the EU-level. The EU disposes about a power, which is not justified under legitimization aspects. The main legitimization criteria is the citizen participation, but especially under this aspect the EU does not fulfill the legitimization criteria, this is shown also in the Maastricht judgment. Possible solutions could be the 'integration à géométrie variable', the subsidiarity principle or on a institutional base the 'markets preserving federalism'. Federal Balance and the Problem of Democratic Legitimacy in the European Union Rudolf Hrbek The article explores in the light of integration theory approaches - aiming at explaining characteristic features and structural components of the EU and the integration process - the EU as emerging political system. The EU system, as multi - level system, is confronted with the problem, to establish and maintain a federal balance. The article, therefore, discusses the contribution of the Principle of Subsidiarity and the role of regions and their activities in this respect. Finally, the article deals with one aspect of the legitimacy problem, which is related to institutional reforms of the EU system. Comments of Klaus Armingeon: The Democratic Deficit of the European Union. Part II: Social Regulation and Market Integration The Development of Social Regulation in the European Community: Policy Externalities, Transaction Costs, Motivational Factors Giandomenico Majone This paper argues that a transaction-cost approach to EC policy making can explain the willingness of the member states to delegate important regulatory powers to supranational institutions, even where such delegation is not required by the functional needs of the single European market. According to Coase theorem, absent transaction costs, negative externalities such as transboundary pollution could be managed by decentralized (intergovernmental) agreements. However, such agreements lack credibility when the contractual partners mistrust each other and behave opportunistically. Centralization is a response to the problems of contractual incompleteness, but the paper suggests that it is not the only, much less the best, response.. In addition, by considering the dynamics of the post-delegation phase we can show how the European Commission is able, under some conditions, to play the role of a policy entrepreneur. Social Regulation and Market Integration: A Critique and Public-Choice Analysis of the Social Chapter Roland Vaubel Social regulation restricts the freedom of contract and ignores differences in individual demand and supply. This is especially serious in an international organisation like the European Union where income differentials are very large. It is shown that social arrangements and preferences in the member countries are significantly correlated with the income level.The view that international differences in social regulations necessarily distort competition is false. Even those who are concerned about the prospect of deregulatory competition in the wake of the internal market programme have no reason for advocating an approximation of social regulation. The European Commission, Parliament and Court of Justice have a vested interest in European social regulation. This is also true for the governments and producers of the highly regulated member countries. The strategy of raising rivals' costs may also explain why the British government opted out from the Social Chapter instead of vetoing it. The decisive voter in the Council is determined for various social regulations. But the suppression of the less regulated member countries will also raise regulation in the decisive member state. The less regulated member states have assented to the Social Chapter because they were promised additional transfers, participation in European monetary policy making etc. and because the internal market has raised the demand for labour and the rent-maximising level of real labour cost which trade unions and median voters in these countries aim at. Part III: Institutional Implications of European Security The Integration of European Security: A Functionalist Analysis Jürg Martin Gabriel n the introduction, the main concerns of the article are introduced: Is European integration temporary or permanent and irreversible ? Can European integration be extended to the field of security ? The argument is developed in two sections: part 1 examines the theoretical foundations for a possible integration of European security, drawing from the insights of functionalist and neofunctionalist integration theory and differentiating between different security functions. Part 2 applies functionalist thinking to different emerging areas of European security cooperation and integration. The main argument is that the functionalist pull provided by interdependence and the political push applied through recurrent intergovernmental bargains provides the driving force for continuing integration in the security field, a process believed to be fundamentally analogous to integration in the areas of technology and economics. The conclusions emphasize the fact that the functionalist integration mechanism functions best within those security functions closest to economics. WEU and Future European Security Arrangements Comments of Richard Tibbels [to be added] Part IV: Constitutionalizing the European Union How can the European Union be Constitutionalized ? The European Parliament's 1994 Proposal for a ´Constitution for the European Union` Ernst-Ulrich Petersmann This essay begins with a brief explanation of why the existing "treaty constitution" of the European Union (= EU) needs to be revised and codified in a simpler and shorter document (I). It then outlines premises of a "constitutional theory" of European integration and discusses, from the perspective of international relations theories, prospects of creating political support for constitutional reforms of the EU (II). The following chapter summarizes and discusses the proposal for a "European Constitution" submitted by the European Parliament in its 1994 "Resolution on the Constitution of the European Union" (III). Chapter IV outlines proposals for strengthening the "external judicial control" of EC law through a system of "judicial federalism". Chapter V concludes with constitutional reform proposals, based on a "public choice perspective", for the 1996 conference on the revision of the Maastricht Treaty on European Union (= TEU) so as to better protect democracy in the EU and a "foreign policy constitution" that promotes respect for international law. Basic Aspects of a European Constitution Martin Seidel The article analyses basic questions of constitutionalizing the European Union. The analysis is orientated at the draft Constitution of the European Parliament of February 1994. The European Community has a constitution; it exercises its competences according to the principle of limited authorization and within a system of division of powers. Therefore, behind the demand for a constitution, there is the idea to create a new federal power and to restructure the European Union into an federal state. The draft Constitution of the European Parliament does not meet this need for a reform. Its aim restricts itself to ameliorating the existing constitution of the European Union by greater efficiency, transparency and a better democratic legitimation of the now existing decision making procedure. The Shaping of a European Constitution and the 1996 IGC: 'Flexibility' as a Key Paradigm? Deirdre Curtin This article focusses on the key concept of "flexibility" in an overall constitutional framework establishing European Union. This emphasis on the need for flexibility has emerged as a central theme in many of the early contributions to the 1996 IGC. The suggestion is that the EU will, with the perspective of imminent enlargement to the East, have to work out a formula enabling member states to enjoy different classes of obligations in an attempt to accomodate many different interests and ambitions. This article examines current possibilities for differentiation within the EU and suggests possible criteria to ensure that the cohesion and institutional unity of the EU is not undermined more than strictly necessary.