Monthly Archives: January 2012

David Cameron and the Treaty Veto


Question: How can we understand the exercise of political leadership in international politics through ‘two-level games’? Discuss with reference to recent British policy in the EU.

Two-level game theory can inform an understanding of how political leadership is exercised in the European Union (“EU”). This essay begins with a theoretical discussion to briefly place two-level game theory as it related to leadership in the wider context of international relations theory before going on to show how it can be applied to leadership settings in an EU context. As a case study, the essay then looks at the decision of David Cameron on December 9 2011 to veto the Fiscal Treaty being negotiated in Brussels in an attempt to prevent a collapse of the Eurozone. It is argued that this event poses challenges for understanding leadership in the EU in terms of two-level games for two key reasons. Firstly, standard analysis of the relevant conditions and supporting coalitions in the UK at the time indicate that agreement should have been possible in Brussels. Secondly, as the policy alternative to agreement was not a reversion to the status quo but rather a treaty excluding the UK, agreement should have been possible as this would have been less bad than political isolation. I will conclude that whilst curious, this challenge to the usefulness of two-level game theory in assessing leadership in the EU is ultimately not fatal if we understand that there was a mismatch between the constraints faced by Cameron domestically and internationally, and the diplomatic tactics he employed at the negotiations in Brussels. The inability to reach agreement was thus a diplomatic failure.

Two-level games theory in international relations stands at the nexus between two rival traditions that seek to explain international cooperation. One such tradition looks to societal conditions as determinants of international outcomes and is characterized by the work of Ronald Rogowski. The main thrust of his argument is that international outcomes affect domestic groups in different ways.[1] Those that benefit from international outcomes will press for further change in the same direction, whilst those who lose will press for reversion. Importantly, as the wealth of the beneficiaries increases so does their political influence, and hence “the likelihood grows that political entrepreneurs will devise mechanisms that can surmount the obstacles to collective action”[2] in order to successfully pressure their domestic politicians for their preferred international policies. International political leadership in this view, is exercised on behalf of domestic coalitions, as international actors (such as ministers negotiating at the EU) rationally pursue the policies preferred by the domestic groups upon which their power base is dependent. To use the language of Slaughter and Scheve, “cleavages” in public preferences over policy are channeled through leaders to result in international outcomes.[3]

In contrast to this school of thought stands realist theory. This posits a much more substantial role for the state as the key determinant of international outcomes. “States are the major actors in world affairs”[4], argues Grieco and they have fundamentally different interests from domestic coalitions. Whilst domestic parties may be interested in their “individual absolute gains” that accrue pursuant to international politics, states are concerned with relative gains.[5] This is because the international political environment is “anarchic”,[6] meaning that states must increase their relative power vis-à-vis other states in order to stave off ever present security threats. For realists, leadership for international actors is not then characterized by deference to domestic preferences. Rather, leaders stand apart from their constituencies in pursuing the goals of the state, which may appear diverse (economic growth, improved political positioning, increased social stability etc.[7]), yet they all relate to the fundamental aim of achieving the greatest possible relative gains in order for the state to “enhance prospects for survival”[8].

Robert Putnam’s two-level game theory[9] takes elements of both of the societal and realist perspectives and arrives at a much more nuanced view of international relations and leadership. He recognizes that domestic and international pressures act concurrently and both have a role to play in explaining international political outcomes. At home, leaders are pressured by groups to achieve certain international policies that benefit them whilst in the international arena these leaders seek to maximize their ability “to satisfy domestic pressures, whilst minimizing the adverse consequences of foreign developments”.[10] He models these interactions as a two-level game. At Level I there is bargaining between negotiators and they reach some provisional agreement. Level II is a ratification process (which may be formal or informal) whereby the Level I agreement will be voted upon by the Level II (domestic) constituency.[11] Thus there is a Level II constituency “win-set” that contains all the possible Level I agreements that will receive assent in the ratification process.[12] The shape of that win-set is critical when analyzing international politics, as there must be some overlap between the Level II win-sets of the respective negotiating parties for any agreement to be possible. The larger the win-sets are, the more likely it is that a successful international agreement will be concluded.[13] The size will also determine how the relative gains from agreement will be distributed and how strong a negotiating stance an international leader has with his opposing parties.

This theory leads to a radically different view of international political leadership than offered by the societal and realist perspectives. Rather than simply mouthpieces for domestic interests or isolated statesmen pursuing power, leaders are seen as “mediating domestic and international pressures”.[14] Leadership means playing a key role in the negotiation process as leaders try to maneuver their opponents closest to their ideal political outcome subject to domestic constraints, the ability to trade across issues, and the amount of information they have about each other’s respective level II win-sets.

The logic of two-level games has been extended and used to analyse a wide variety of international agreements from Brazilian debt negotiations[15] to agricultural policy reform.[16] In the context of the EU, two-level game theory has been used to explain the process of European integration by Andrew Moravcsik in a theory called “liberal intergovernmentalism”. This theory combines the idea that national preferences for economic integration are formed as a result of the costs and benefits of interdependence accruing to different domestic groups. At the same time, the intensity of these preferences, the possibility of alternative polices or coalitions, and, in the language of Putnam, the contours of the win-set will “determine the resolution of distributional conflicts among governments”.[17] National preference formation takes place as groups apply pressure to domestic leaders, and governments realize the costs and benefits from economic integration. Meanwhile, the outcomes of strategic interactions that take place in the EU are the rational responses of the negotiating parties delineated by the alternative policies and coalitions available to them.

Whilst this method has been criticized not paying enough heed to the institutional rules that govern decision making in the EU[18], it does not appear to have been challenged in the implications it generates regarding leadership in the EU. As with the above analysis of generalized two-level games, liberal intergovernmentalism implies leaders that are mediating between the domestic demands for both the level and type of European integration, and trying to position themselves within the EU such that an agreement closest to the domestic ideal can be reached subject to the positions of the other negotiating parties.

This is a general theory that models how international actors behave in their interactions at the EU, and the domestic factors that constrain them, and at that level of generality it is to be expected that there exist outliers that do not conform to the predictions of the model. Nevertheless, it should be instructive to look at specific instances of leadership in order to see how they fit into the two-level analysis, and indeed whether after the event, the two-level theory can help our understanding of what has occurred. The remainder of this essay will look at once such instance being the leadership exercised by David Cameron in the last month of 2011 when he vetoed the Fiscal Treaty being negotiated at the EU.

On the evening of December 8 2011 European leaders met in Brussels to flesh out the terms of a treaty aimed at strengthening fiscal discipline in the EU in order to ensure the survival of the Eurozone and “restoring market confidence”[19] in the wake of the sovereign debt. Cameron, leader of the Conservative-Democrat coalition government of the UK had promised in the lead up to the treaty discussions not to “throw a spanner in the works”,[20] and hence it was widely expected that a deal could be reached. A Conservative member of parliament is quoted as saying “The priority for the government has got to be to ensure that the Eurozone survives.”[21] Despite this need for agreement, in the early hours of December 9 Cameron decided that the UK could not agree to the treaty as proposed, as he did not receive the safeguards he wanted to ensure that the treaty would not undermine the EU single market nor technical safeguards for the City of London.[22] The exercise of the veto appears to challenge the two-level analysis of leadership in the EU for the following two reasons. Firstly, the level II win-set appears to have contained exactly the type of agreement that was rejected at level I by Cameron, and secondly the policy alternatives at Level I appear to have been profoundly unattractive.

The size of the level II win-set appears to have been relatively large. The un-coordinated fiscal policies of the Eurozone countries were in effect creating large negative policy externalities on the UK. Roughly half of the UK’s exports are purchased by the EU and consequently “around 3.5 million jobs in the UK are linked to the export of goods and services to the EU.”[23] On 15th December 2011 The Confederation of British Industry reported that 41% of manufacturers were reporting below average export order books reflecting “on-going instability in the Euro area”.[24] In this type of case where a negotiating partner imposes negative externalities, and unilateral adjustment is not a feasible response there is an “unambiguous incentive to coordinate policy.”[25] Small win-sets are typical when the cost to constituents of “no-agreement” is small, notes Putnam.[26] The costs in this case were far from small. Cameron recognized that the fiscal crisis was having a “chilling effect on Britain’s economy”[27] and that failure to agree was widely reported to put the Eurozone in further danger thus risking British jobs and economic prospects.[28] High costs imply that the level II win-set was large meaning that it is likely to have contained the Fiscal Treaty as it was proposed. It is thus likely that there was considerable overlap between the Level II win-sets of the negotiating parties which should have made agreement possible at Level I.

However, it is not enough to simply state that the domestic costs from a particular policy were high. This is because how those costs are distributed through the population is important for understanding how Level II pressure is applied to leaders such as Cameron. For example, where the benefits or costs of a policy are distributed widely throughout the population (e.g. monetary policy[29]), the logic of collective action[30] dictates that less pressure will be applied by Level II constituents on their leaders as there is incentive to free ride upon the action taken by others affected by the policy. On the other hand, where costs are borne by specific groups (e.g. trade policy[31]) it is more likely that they will be able to coordinate to overcome these collective action problems and apply pressure on their leaders. The effect of the former situation is that leaders are less constrained by the Level II constituents and may negotiate more freely, perhaps toward their personal or party policy ideal at Level I, whilst the reverse is true of the latter situation. 

In the case in question, whilst it is undoubtedly true that the economic costs of “no-agreement” would be diffusely spread throughout the UK population this should not be interpreted to mean that Cameron was isolated from Level II pressures. He did not thus have a free hand to veto the fiscal treaty. This is because whilst costs were widespread, as noted above a high level of cost intensity accrued to certain sectors such as manufacturing, service exporters and all industries exporting to the EU. Their intense interest in agreement gave them a much greater incentive to organize in favour of the treaty. Moreover these particular groups have already overcome their collective action problems by having long established channels of access to government through which lobbying activity occurs, hence why we see in general “a political bias in favour of producers vis-à-vis those with more diffuse interests such as tax-payers and individual consumers.”[32]

For the sake of completeness it should be recognized that support for the fiscal treaty was by no means universal. There was what Putnam term “generic opposition”[33] in the form of Eurosceptic Conservative members of parliament and their sympathizers. Indeed a group of around 100 Conservative back bench MPs were calling for a referendum on the treaty[34] and others were calling on Cameron to use the treaty as a launching ground for repatriating certain powers from Brussels.[35] However, this opposition does not change the analysis of win-sets and preferences outlined above for two reasons. Firstly, this opposition was minority in nature, and secondly it was opposition based on a view of the treaty as a political project rather than a fiscal project. This is relevant because private producers and businesses (those affected by the commerical outcomes of the treaty) take little interest in political cooperation, and hence did not rally around the political clamour that was questioning Britain’s place in the EU. Additionally, as noted above Cameron had promised not to throw a spanner in the works at the Brussels summit.

On an initial review of the conditions in Brussels at the Level I negotiations, it likewise appears that agreement should have been possible. It was clear before the treaty negotiations began that the alternative to British participation in the treaty was not no-treaty, but a treaty involving the other members of the Eurozone and potentially the other nine non-Eurozone states.[36] The UK did not have what Gruber terms “go-it-alone power”[37], in that there were no unilateral policy options that they could take to achieve the outcomes desired by the fiscal union. Cameron was therefore faced with having to agree to the treaty, or face a Europe where the UK would be excluded participating in decisions that would undoubtedly affect the UK economy. Thus although a treaty without the safeguards desired by Cameron may not have been ideal, faced with the certainty of agreement irrespective of UK participation, and an arguably strong incentive to be on the inside rather than the outside of any fiscal deal, Cameron might have been expected to agree to the treaty as there was an absence of any attractive alternative.[38] As Moravcsik notes, it is under conditions exactly such as those described that “a government may seek to avoid exclusion by agreeing to terms of cooperation that leave it worse off in absolute terms than the status quo ante” [emphasis in original].[39] Indeed in aftermath of the treaty, Cameron was widely criticized for leaving Britain “without a voice”[40] in the EU.

It appears therefore that conditions both at Level I and Level II were such that Cameron could have achieved agreement in Brussels. As leader, the balance of his Level II constituents were demanding a resolution through treaty. The Level II win-set was large and hence the universe of possible Level I agreements was also large. At Level I the range of his leadership options was constrained by the lack of viable alternative options (both unilateral and as part of a coalition). How then can we understand the decision to exercise the veto when an initial analysis of Cameron’s leadership in the EU using a two-level approach indicates that an agreement should have been made?

It is argued here, that the failure to reach agreement was due to a failure on the part of Mr. Cameron to realize the constraints facing him and this was revealed in the tactics he employed at the summit. One of the consequences of being a member of the EU is that negotiating parties have a wealth of information about the domestic situation of their counterparts. It is therefore highly likely that the other EU members, particularly France and Germany, were aware that the Level II win-set facing Cameron was large. This is of great importance because the “larger the perceived win-set of a negotiator the more he can be pushed around by the other Level I negotiators.”[41] Cameron should then have been aware that he had a weak negotiating hand at the summit, and that if he demanded too much “Eurozone leaders could call his bluff”[42] and press ahead without participation of the UK. It appears that his Level I leadership tactic of remorselessly demanding what Angela Merkel termed “politically impossible”[43] carve outs for British industry, was mismatched with the his negotiating possibilities as dictated by the Level II constituency win-set.

Additionally it appears that he was not sensitive enough to the fact that the alternative policy options for the other negotiating parties at Level I were virtually identical to full treaty agreement. Indeed it was suspected that France in fact preferred a treaty excluding the UK.[44] The primary downside of a treaty without the UK is that the institutions of the EU would not be automatically available to enforce and monitor the terms of the treaty. However, it was believed by EU lawyers that this constraint could be got around,[45] and in any event Cameron’s objection to the use of EU institutions has since softened.[46] In other words, the negotiating positions of Cameron’s counterparts were extremely strong due to the consensus nature of the coalition available in the case of no-agreement at full treaty level. The other European leaders therefore had no incentive whatsoever to pander to demands made by the UK at Level I, as they could achieve an equally attractive agreement without the participation of Britain. Therefore, pursuant to a two-level analysis of Cameron’s leadership in the EU at the fiscal treaty summit I conclude that he was not sensitive enough to the negotiating constraints placed upon him by a large Level II constituency win-set, nor the constraints placed upon him by the possibility of alternative Level I agreements between the other EU members. As such, the outcomes of this particular instance of leadership should be viewed as the consequences of diplomatic failure and not as a challenge to the two-level framework itself.

This essay has used a two-level games framework to posit leadership based on mediation of domestic and international pressures. In the EU specific context it has shown how the logic of two-level games has been incorporated into a liberal intergovernmentalist theory of European integration, and how that applies to leadership in the EU. As a case study it has reviewed an important instance of leadership being exercised in the EU, namely at the fiscal treaty summit held in Brussels in December 2011. I argued that given a large win-set and relative lack of alternative options, Cameron should have sought agreement with the other members of the EU. Whilst it seems that the fact of the veto could challenge the usefulness of the two-level approach in analyzing this instance of leadership, I conclude that it is still a good method, and can help us understand how the failure of the UK to agree in Brussels was due to a diplomatic failing on the part of David Cameron for not recognizing that there was a critical mismatch between his bargaining stance, and the feasible bargaining possibilities determined by conditions at both Level I and level II.

[1] R. Rogowski, Commerce and Coalitions: How Trade Affects Domestic Political Alignments (1989) Princeton University Press p. 1

[2] Ibid. p. 5

[3] K.F. Scheve & M. J. Slaughter Globalization and the perceptions of American Workers (2001) Institute For International Economics Chapter 3

[4]  J.M. Grieco Anarchy and the Limits of Cooperation: A Realist Critique of the Newest Liberal Institutionalism, International Organization, Vol. 42, No. 3 (1988) p.488

[5] J.M. Grieco op. cit.  p. 487

[6] S. Huntington International Security, Vol. 17 No. 4 (Spring, 1993) p. 72

[7] S. Krasner State Power and the Structure of International Trade World Politics, Vol. 28, No. 3 (1976), pp. 319-321

[8] J.M Grieco op. cit. p. 503

[9] R.D. Putnam Diplomacy and Domestic Politics: The Logic of Two-Level Games International Organization, Vol. 42, No.3 (1988) pp.427-460

[10] Ibid. p. 434

[11] Ibid. p. 436

[12] Ibid. p. 437

[13] Ibid p.438

[14] Ibid p. 433

[15] H.P Lehman & J.L. McCoy The Dynamics of the Two-Level Bargaining Game: The 1988 Brazilian Debt Negotiations World Politics, Vol. 44 No. 4 (1992), pp. 600-644

[16] R. Paarlberg Agricultural Policy Reform and the Uruguay Round: Synergistic Linkage in a Two-Level Game? International Organization Vol.51, No. 3, (1997), pp. 413–44

[17] A. Moravcsik Preferences and Power in the European Community: A Liberal Intergovernmentalist Approach Journal of Common Market Studies Vol. 31, No.4, (1993) pp. 480-481

[18] G. Garrett and G. Tsebelis An Institutional Critique of Intergovernmentalism International Organization Vol. 50, No. 2 (1996) p. 270

[19] David Cameron, Hansard Commons Debates 12 December 2011, Column 519

[20] G. Parker (2011) Cameron Pledges not to Jeopardise Negotiations Financial Times (London Edition), 2 December, p. 8

[21] Ibid.

[22] G Parker & A. Barker (2011) Cameron’s Use of Treaty Veto Leaves Britain an Outsider in New Union Financial Times (London Edition) December 10, p. 2

[23] Department for Business, Innovation and Skills The UK and the Single Market: Trade and Investment Analytical Papers

Topic 4 of 18 (2011) p. 3

[24] The Confederation of British Industry Press Release Manufacturing output expected to fall further as demand remains weak – CBI 15 December 2011

[25] A. Moravcsik op. cit. p. 486

[26] R. Putnam op. cit. p. 442

[27] David Cameron, Hansard Commons Debates 12 December 2011, Column 519

[28] B. Groom (2011) Businesses More Worried Over Lack of Resolution to Crisis Financial Times (London Edition), 10 December p. 4

[29] J. Gowa Public Good and Political Institutions: Trade and Monetary Policy Processes in the United States International Organization, Vol. 42, No. 1, (1988) p. 26

[30] M. Olson The Logic of Collective Action: Public Goods and the Theory of Groups (1965), Harvard University Press

[31] J. Gowa op. cit. p. 22

[32] A. Moravcsik op. cit. p. 488

[33] R. Putnam op. cit. p. 442

[34] J. Kirkup & B. Waterfield (2011) Cameron Faces Another Revolt From the Ranks as Tory Rebels Demand Referendum on Euro Deal, The Daily Telegraph (National Edition) December 8, p. 1

[35] J. Kirkup & B. Waterfield (2011) Tories could wreck EU talks, says PM; France ‘trying to poison EU summit’ The Daily Telegraph (Scotland Edition) December 9 pp. 1-2

[36] G. Parker & A. Barker (2011) ‘Bulldog’ Cameron Risks Having His Bluff Called, Financial Times (London Edition), December 8, p. 7

[37] L. Gruber Ruling the World: Power Politics and the Rise of Supranational Institutions (2000),  Princeton University Press, p. 41

[38] L. Gruber op. cit. p. 47

[39] A. Moravcsik op. cit. p. 503

[40] G. Parker, D. Oakley & P. Spiegel (2011) Cameron Veto Exposes Coalition Rift Financial times (London Edition) December 13, p.1

[41] R. Putnam op. cit p 440

[42] G. Parker & A. Barker (2011) ‘Bulldog’ Cameron Risks Having His Bluff Called, Financial Times (London Edition), December 8, p. 7

[43] A. Barker & G. Parker (2011) A Brush-Off for Britain Financial Times (London Edition), December 18, p. 13

[44] T. Barber Summit was a Disaster for British Diplomacy Financial Times (London Edition) December 14, p. 6

[45] P. Spiegel (2011) UK Scuppers Merkel’s Desire for Legal Certainty Financial Times (Asia Edition) December 10, p. 3

[46] G. Parker & A. Barker Cameron and Sarkozy on Collision Course Financial Times (Europe Edition) January 7,  p. 3