ºÃÉ«App

We develop a simple framework to study the interplay between identity politics and international integration, when identities themselves are endogenous. Contrary to widespread intuitions, we find that a robust union does not require that all members share a common identity. Nor is a common identity likely to emerge as a result of integration. The general result is that a union is more fragile when periphery countries have high ex-ante status. Low-status countries are less likely to secede, even when between-country economic differences are large and although equilibrium union policies impose significant hardship. We trace the implications of the model for the stability and challenges facing the European Union and the Eurozone.