De facto differentiation in the EU’s economic and monetary union - A rationalist explanation

ABSTRACT Although there are various legal tools to make European integration more flexible, the EU and its member states uphold long-term arrangements of de facto differentiation circumventing EU law. This article assesses their role in the EU’s system of differentiated integration. To that end, it advances a model based on rational choice theory, outlining the steps and conditions under which tolerated arrangements of de facto differentiation can emerge. This is illustrated in three case studies in Economic and Monetary Union (EMU): (1) Sweden’s de facto opt-out from EMU; (2) Kosovo’s adoption of the euro as sole legal tender, and (3) the Fiscal Compact. Data was gathered via document analysis and 11 expert interviews. The article concludes that de facto differentiation may constitute a viable alternative and useful means to make EU integration more flexible if strong national demand for differentiation meets the need for discretion or timely, pragmatic action.