The Troubles of the New Fiscal Compact

Yesterday I wrote about the left and the new fiscal compact, and I've noted that the centre-left PES seems to be hoping that the French and German elections will help replace our current Merkozy with a PES version. EUObserver has reported that a majority of the French public (52%) are opposed to the (as yet undrafted) EU deal on fiscal union, largely following left-right lines. The Socialist challenger for the presidency, Francois Hollande:

"...announced that he would renegotiate the document.

"If I am elected president, I will renegotiate the agreement to put what it lacks today," he told RTL.

He said that he would “add what is missing”, mentioning he would push to include intervention from the European Central Bank, the creation of eurobonds and a financial relief fund.

“Finally, there must also be growth,” he added. “Without growth, we will not reach any of our objectives of deficit reduction.”

The Frenchman attacked the core concept of the new agreement, a ‘golden rule’, or balanced budget amendment that should be inscribed into constitutions, in effect preventing future governments from exercising expansionary fiscal policies.

Asked about the golden rule, the candidate said he would not vote for it “under this logic”."

While not all of the troubles fall along clearly drawn left-right battlelines, I think it's fair to say that it would be a mistake to read in a support for the UK negotiating position, as the issues seem to be based around the content of fiscal union rather than either the question of having a fiscal union or voting arrangements for regulating the financial services. Apart from the right-left divide is the concern of the non-Eurozone countries, like Hungary, that it would lead to tax harmonisation even outside the Eurozone. I don't know if this is being discussed (it wasn't mentioned in the deal produced last week), but it seems unlikely that there will be tax harmonisation even for the Eurozone, given so many Eurozone members are against it.

But the main issues will be those Hollande has highlighted: how much solidarity there should be in fiscal union. Merkel is kidding herself (or talking up the value of the deal for her domestic audiance) if she thinks that the deal on the table means political union - the greatest challenge to the deal will come from the push against the maintanence of the German sacred cows of retaining the ECB's current role and the ruling out of Eurobonds. However, it is doubtful that these ambitious goals could be won as well as removing the "golden budget rule" (who knows, maybe any financial relief fund would be sold as a counter-balance to national austerity brought about by the golden rule). The question is whether this pressure (and that of the markets) will force the negotiations to move further and further away from the starting points agreed on this month...

A new EU history. For China

China has its first textbook on the history and development of the EU: an Austrian book that was unveilled by the Austrian ambassador in China, Sajdik, who also revised and updated the book for translation. As Der Standard reports, it's apparently one of the first books of its kind in China.


Interest in the EU might have peaked lately in China now with the crisis, but I wonder what they make of us these days...

The Left and the New Fiscal Compact

The new fiscal compact is all about discipline. Eurozone states will need to keep their debt and deficits under control and this will be supervised by the Commission. The compact has come in for a lot of criticism already for two reasons - it's too austerity focused (making keynesianism policies difficult if not impossible), and it doesn't address the immediate crisis. This has lead to calls for the left to take the fight to the EU and queries over the democratic desirability of the deal. But what can the left do?

The urgency of fiscal union and the necessity of discipline

To some extent discipline is necessary. If there's going to be a currency union with fiscal solidarity (Eurobonds, the ECB playing the role of the lender of last resort, etc.), then Member states need to be relatively sure that they're not signing an open-ended agreement to support the spending plans of other Eurozone countries without any say or safeguards from the moral hazards that might arise.

The problem is that this new fiscal compact offers no real solidarity: it's essentially a Stability and Growth Pact Plus. The economic hopes behind the deal were pinned on the reaction of the ECB, and whether it would act more as a lender of last resort (it would have been better if this was part of the deal, rather than a hoped-for side effect). The deal expresses an intention for future fiscal solidarity, but it doesn't define what the possibilities are or set a time frame for them. That said, there's 3 months to negotiate the actual treaty so the crisis and negotiations could take twists and turns that force the Eurozone to look more closely at fiscal solidarity. Still, for all the urgency for greater solidarity to make the Eurozone more politically and economically credible, some level of discipline is necessary to underline the necessary trust for the system to work. Any alternative articulated by the left needs to take account of this.

The options for fiscal union seem to be: do nothing (which doesn't seem an option, but is the default if the deal falls apart), fiscal discipline, or fiscal discipline plus some form of solidarity (from a changed ECB role to Eurobonds and a common growth strategy). The argument runs that the bail-out countries need investment and growth plans and that the new discipline entrenches the failed austerity. But where would the money come from to invest in the bail-out countries and in the countries on the edge of bailed-out-dom? The markets won't accept the level of borrowing necessary, so there would need to be more solidarity and support across the Eurozone to encourage growth. (Not to mention rhe need for democratic controls through national and the European parliaments). There needs to be a coordinated response, and therefore any alternative has to be backed up by a political coalition that could win support to advance its solution across the Eurozone. Success in simply opposing the new fiscal compact would merely keep us in the same position we're in now: there needs to be a viable alternative.

Does the Left measure up to this?

Simply put: no, not really. The Party of European Socialists (the centre-left bloc of parties) has criticised the lack of Eurobonds and changes for the ECB:

"PES interim-President, Sergei Stanishev, argued that the important elements missing from the summit decisions are granting the European bailout fund a banking licence, introducing eurobonds, introducing a financial transactions tax, and a "real plan" for investment and growth.

[...]

The European Central Bank (ECB) has also been given the possibility to provide ‘technical support’ for the European Financial Stability Fund (EFSF) and buy bonds only on secondary markets. The European Stability Mechanism is set to start in July 2012.

In summary, this draft plan is a clear and historical signal of what a Conservative majority in Europe means for ordinary people. In the past, the European Union succeeded because any advance on the single market or on monetary union was always balanced by improvements in social Europe. This is not the case this time. The absence of a growth strategy and solidarity is striking.

There is a huge risk that the absence of proposals on Eurobonds, on an EFSF banking license, and on a coherent Investment strategy, could lead to an absence of public support."

Despite making the right noises, there doesn't seem to be a full vision for what needs to be done and what shape it will take. Though the Europarties tend to be quite coherent in the European Parliament, they have a dismal track record at forming the basis of promoting new political arguments or shaping a political coalition around established arguments.

Within the Eurozone countries discussion will turn to the benefits of the deal versus the loss of sovereignty. If the choice isn't to be between the compact and what we have now, the opposition will have to organise around a credible alternative. But then there's never been a political demand within the national parties for a stronger common platform - and even with the best will in the world it would be hard to construct one ad hoc at the moment. But perhaps the PES could act as a link between centre-left parties to transmit ideas and to help some sort of consensus emerge slowly as the crisis progresses (and it's got a long way to go yet). It will be a miracle if the left can build a common theme and European alliances they can point to form a basis to their opposition, but it's necessary to form a constructive opposition.

Anyone willing to place their bets?

Unreasonableness and the Rebate

While political battles are being waged over Cameron's veto, there seems to be at least one point of consensus within Britain: that the demands on the protection for financial services were reasonable. The Labour party hasn't set out exactly what it would have done (it says it would have stayed at the table and achieved a better deal, though it's hard to run a "what-if" scenario since the Cameron government's relations and those of a Labour government with the other 26 Member States over the last few months would need to be taken into account), but it seems that Labour basically supports the government's position on the treaty changes it was seeking, and that such changes were reasonable.

But today the Commission President Barroso told the European Parliament that Britain's demands were unreasonable and would have threatened the internal market.


Unreasonable Demands?

Financial services are part of the internal market, and are covered by Article 114 TFEU. This article provides for the regulation of the internal market, and the legislative procedure is the ordinary legislative procedure (i.e. the Commission proposes, and the Council and Parliament have an equal say in amending and passing the legislation). Britain wanted to insert a protocol which would grant every Member State a veto if the regulation was concerned with the financial services sector. Because every Member State would have a veto, the British government argues that it wasn't merely seeking to protect the City or asking for special treatment for itself.

However, this does threaten the legal and political basis of the internal market. To make it harder to regulate one sector of the internal market is to privilege one sector of the internal market over all other sectors. While it may be technically correct that Britain wouldn't be legally privileged over the other Member States, this would have created a separate legal procedure for introducing regulations for a separate sector of the market, so it would have introduced a legal division in the treaties between financial services and the rest of the internal market.

Then there's the political concept of the internal market. That internal market legislation is passed by majority voting is not only necessary to ensure that legislation can be passed at a pace that more closely reflects the pace of innovation in the market (compared with unanimity - we don't want to return to the days of waiting years for a single regulation to be passed), but also this politically underlines the mutual trust between the Member States in each other as they work on the internal market. If legislation is passed by qualified majority vote, then everyone has to work together to get legislation passed (and can't simply oppose all legislation outright to get its way) and Member States also have to be sensitive to the needs of the others (in other words: if you outvote me here, I'll outvote you there, so let's not play the zero-sum game). By introducing special protections for parts of the market that have been identified as a key interest by one Member State, in political terms you are privileging that Member State over the others in the overall internal market negotiations, and weakening the trust that is supposed to underwrite the market.

So Barroso was right to say that what Britain was asking for was unacceptable (or at least that it would be unacceptable for other Member States). Why should the financial sector be treated differently to other parts of the internal market? Should Germany have a protocol so there's a veto in the area of environmental policy when it comes to the car industry? Why shouldn't economic sectors of interest to other Member States be more protected? Because the more you reverse the integration in the internal market, the more you break up that market. Similarly, most other Member States see the social chapter as protecting their welfare states from a race to the bottom while entrusting their economies to the competition of the internal market. Yes the UK is one of the most committed Member States to free markets and a liberal internal market. But it fails to see how these trade-offs are part of the "Single Market Pact" sometimes, and how unacceptable its position can appear to others. If you can't understand the position of those you negotiate with, then you don't stand a good chance in negotiations.

It should also be noted that there are plenty of EU regulations that only set minimum standards, above which Member States may regulate more heavily. It should be easy to negotiate this minimum standard approach, rather than pitch for a full legal division of the internal market.

Finally, Barroso claims that he tabled a motion that should have met key British demands on protecting the internal market from a Eurozone caucus:

"In search of compromise, I tabled a clause providing, in the EU treaties, that any measures adopted by the Council and applying to the euro area only, must not undermine the internal market including in financial services. Unfortunately this compromise proved impossible."

The Rebate

Joseph Daul, the leader of the European People's Party group in the European Parliament, said:

"I believe that the British rebate should be put into question. Our taxpayers' money should be used for things other than rewarding selfish and nationalistic attitudes."

For the UK, the rebate is like the EP's Strasbourg seat for France or the protection of the low corporation tax for Ireland. For Britain the rebate is a question of fairness: otherwise it would contribute more to the EU, which isn't fair as others get back more in the Common Agricultural Policy.

But times have changed since Thatcher demanded Britain's money back. Back then the EU was a club of fairly wealthy countries, but now it has expanded to include the former post-communist, Warsaw Pact countries. During the negotiations for the "Big Bang" enlargement - which the UK was a huge supporter of - the question of the British rebate was raised. With 10 new Member States joining, which would all be poorer than the then-current members, there would be greater pressure on the EU budget to cover the structural funds and CAP costs. Would Britain, who supported this enlargement so much, not either give up or reduce its rebate to help cover the costs of greater solidarity with the new members? No. In fact there was the sad situation where Poland had to ask how much more the new members would have to pay to make membership a reality. Because the EU budget cannot be based on debt, so other countries have to fund Britain's rebate.

Of course it's not as simple as saying that Britain should have surrendered its rebate at that point. It's not to say that there are not other interests that are protected in the EU budget and that these shouldn't be seriously negotiated over. But it is an odd policy to drive forward enlargement, while demanding the EU budget to remain static on the one hand, and defending the British rebate on the other. If Britain is to make the case for the fairness of the rebate, it will have to move on from the arguments of Thatcher.

The key point is that the EU is a compromise. The internal market isn't something that can be viewed in isolation, and it is a mistake of British politics that the EU is often only presented in that way. Without the solidarity with poorer regions, opening them up to the competition from the more advanced economies is a hard sell. A minimum level of solidarity is required to ensure that the welfare states and the communities in Member States won't be too negatively affected by the downsides of the internal market - and in some countries where euroscepticism is mainly on the left it is argued that the EU is neo-liberal and there isn't enough solidarity. So when discussing the internal market, social policy and the budget, we need to have a more nuanced and fuller idea of the fairness that's required in the EU for even a minimalist internal market to work.

Nirj Deva and the European Parliament Presidency Campaign

The British European Conservative and Reformist candidate for the Presidency of the European Parliament, Nirj Deva, has gained support from far-right MEPs despite not seeking it:

"A nomination paper leaked to Hope Not Hate, a UK anti-fascist watchdog group, and seen by EUobserver shows the signatures of Griffin, Gollnisch and five other MEPs from the far-right of the chamber, one immediately after the other, suggesting the document was passed directly between these MEPs, all of which maintain close ties with each other.

The anti-federalist European Conservatives and Reformist grouping in the parliament, which backs Deva’s bid for the presidency, was quick to distance the candidate from his nationalist supporters.

“He has been nominated by the ECR and nobody else,” the group’s spokesman, James Holtum, told EUobserver."

Martin Schulz, the leader of the Socialists and Democrats group (the centre-left group), will probably win the contest as there is an agreement between the European People's Party group and the S&D that they will share the presidency during this parliament. The current president, Jerzy Buzek (EPP) will soon stand down, and Schulz will be officially backed by the EPP and the Liberal group. However, Schulz isn't the most popular MEP, and British Liberal MEP Diane Wallis is running as an independent against him.

With two challengers to the EPP-S&D carve up, it will be interesting to see who will do better. Wallis is officially acting without the support of her Liberal group, but she could attract those liberal and EPP MEPs - and perhaps even some S&D MEPs - who can't bring themselves to vote for Schulz. But how will it compare to Deva's support? Though the ECR group doesn't attract a lot of good will, and therefore is handicapped when it comes to building parliamentary coalitions, Deva is a well respected MEP who, according to EUObserver, has won "MEP of the year" in the area of development last month.

It's good to see the ECR contesting the election. The EP presidency is more political than the role of most parliamentary speakers/chairpersons as the EP President has to stick up for the Parliament in inter-institutional battles. So while I don't support the ECR, this is exactly the kind of election they should be contesting: institutional politics and questions of integration are a major reason for founding the ECR in the first place. Will Deva present himself as more than just a candidate hoping to force an election, and run on a more ideological campaign? It would be a lost opportunity if he doesn't, even if it makes it harder for him to build alliances.

Post-Veto Politics

Britain has lost influence and friends in the EU due to the veto, but it doesn't mean that the UK won't get another chance to sit around the negotiating table because the new fiscal compact is far from a done deal.

Isolated Britain

First of all, how Britain has isolated itself needs to be recognised. When it comes to treaty renegotiation, Britain has a bad hand to play. Though the Tory right have talked up the crisis as an opportunity to renegotiate the UK's EU position and the possibility of leading a group of non-Eurozone countries. Both ideas are - and have proven themselves to be - ridiculous. The crisis makes it more likely that governments under pressure will try to circumvent an obstructive Britain in the rush to save the Euro than waste time opening up non-Euro areas of the Treaties. Most of the non-Eurozone countries either see themselves as future Eurozone members (most of them are legally obliged to eventually join), or see buying into the deal as a cheap way of ensuring influence (it has no affect on non-Eurozone members after all.

Second, though Britain wasn't arguing for major renegotiation of the treaties (e.g. on social policy powers), the UK's demands weren't as reasonable as they are now being presented. Under the present Treaties there is already a veto on introducing measures such as a financial transaction tax, so Cameron's veto doesn't add any extra protection in this area. On other financial regulations (decided by qualified majority voting, but in practice never previously passed without UK consent) we need to be clear that the UK was asking for special treatment of the financial services compared to other parts of the internal market. Why should financial services be treated differently and not any of the countless other economic interests of the other 26 Member States? Ironically France ending up standing up for the integrity of the internal market against Britain! In any case, Britain's demands could have probably been accomodated in practice during the normal legislative negotiations rather than tampering with the internal market as a concept.

It's not hard to see why the UK found itself without support for its position at the summit.


The New Fiscal Compact

Though Britain has damaged its own interests and alliances, it could try to repair them and it could find itself at the negotiating table again soon. The new fiscal compact only focuses on fiscal discipline, and doesn't touch on the role of the ECB or on the possibility of Eurobonds. Reassuring Germany over discipline without a trade-off on fiscal solidarity makes the deal harder to sell, and it could still fail. Some elements of solidarity might emerge over the course of negotiations between now and March (we all know that more happens in a week than in a year for the EU in this crisis).

Still, if the deal collapses, the Eurozone might need to reform the EU institutions (democratic legitimacy might re-emerge as an issue: after all, it's the aim of Merkel's CDU to mae the Commission President a directly elected office), and therefore an all-EU treaty change with the UK participating. It might even be the case that another treaty change is needed since the current deal doesn't do enough to help solve the crisis. This would still not be a good opportunity to renegotiate the UK-EU relationship to a great extent - if anything the Eurozone governments would be more panicked and willing to use any means necessary to save the Eurozone, and the international pressure on the UK not to block a deal would be huge - but it would provide a means of restoring influence and relationships within the EU for Britain. We'll see if it gets this second chance.

The new fiscal compact

Yesterday's neotiations have produced an agreement on a new "fiscal compact" (i.e. they hope the ECB will start playing the role of a normal central bank as much as it can now, even though it's too politically difficult for Germany to agree to it yet). You can find the agreement here (PDF).

Some of the main points are:

"General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP.

• Such a rule will also be introduced in Member States' national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each Member State on the basis of principles proposed by the Commission. We recognise the jurisdiction of the Court of Justice to verify the transposition of this rule at national level. [The ECJ will therefore only rule on whether thi rule has been correctly transposed into national law and will not rule on the imposition of sanctions].

• Member States shall converge towards their specific reference level, according to a calendar proposed by the Commission.

• Member States in Excessive Deficit Procedure shall submit to the Commission and the Council for endorsement, an economic partnership programme detailing the necessary structural reforms to ensure an effectively durable correction of excessive deficits. The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and the Council.

• A mechanism will be put in place for the ex ante reporting by Member States of their
national debt issuance plans."

There is also a promise to boost the IMF by €200 billion and the European Stability Mechanism (which is to take over from the EFSF in March as the crisis mechanism - though the EFSF will continue working on the current bail-outs until 2013) will take decision during times of crisis by a super qualified majority of 85% if Finland's parliament agrees.

It's easy to criticise the deal as not going anywhere to solving the current crisis - after all, the short term goal of the plan was to provide the ECB with the political cover to do what Germany lacked the political will to change legally in the Bank's charter. Since the ECB's president practically crushed these hopes yesterday, it's hard to see the ECB going a long way to meet this open secret demand. However, the level of integration proposed by the agreement is striking. The powers of budgetry oversight by the Commission and the ability to send in inspectors to non-bail-out countries are particularly remarkable.

While common budget discipline is necessary, there is only the promise to look at tools like Eurobonds in the future. This raises a big issue: if we accept that this agreement is a stepping stone on the way to Eurobonds (introduced in stages to reassure Germany), then it's still a difficult position for the other Euro states to take it on trust. Without the ability to voe on economic policy (opposed to simply vetoing sanctions), and without any promise of some form of transfer union or the possibility of Eurozone investment in deficit-reducing economies, the deal will be difficult to pass in places like Ireland. It will be justifiably argued that this deal sets an inflexible economic policy in stone, and it will be hard to convince people to accept it he understanding that Germany will eventually accede to Eurobonds and a transfer union if its confidence is built up by acceptance of the deal.

How do you sell only half a fiscal union that doesn't seem to deal with the short term crisis which demanded it in the first place?

The Veto

Cameron has played the UK's veto. Returning social policy powers to London wasn't on the table, but it seems that having a seat at the Eurozone meetings and opt-outs on financial services laws were. Ironically the former was to ensure that the Eurozone didn't start dividing up the internal market, while the latter would have, er, divided the internal market by providing one rule for the UK and another for the other 26...

In any case the UK has been left out of the negotiating room: the deal will be signed by 23 Member States, with others considering whether or not to sign up. Backing out of a deal was always going to upset the Eurozone countries, but it will be interesting to see how the UK's relations will develop with the other non-Eurozone countries. Sweden's foreign minister mocked the UK's position in a tweet:

"Worried that Britain is starting to drift away from Europe in a serious way. To where? In a strong alliance with Hungary."

The inclusion of these other non-Eurozone countries should be enough to ensure that the Eurozone doesn't go ahead on internal market matters without the rest of the EU (the Danish presidency will be particularly helpful in protecting the position of non-Eurozone members), though it probably does damage the short term influence of the UK in the EU.

Britain's Bad Negotiating Position

Eurosceptic Conservative backbenchers in the UK want to use the summit tomorrow to negotiate the return of powers from the EU to the UK. It's not clear what powers they want to return to Westminster, but it's likely that the area they're interested in is social policy. This area covers things like the 35 hour week, maternity leave, and holidays. The problem is that Britain isn't in a good negotiating position.

First of all, the official position of the British government is that they want the Eurozone to have some level of fiscal union so that the Euro survives and the British economy is protected by meltdown. It would be a bit strange if the UK government suddenly switched from cheer leading greater integration to threatening to block it so other treaty areas could be opened up. Even if there weren't any other problems with the renegotiation position, this would leave the renegotiation position without credibility. After all, which does Britain need more at the moment: a stable Eurozone or a full treaty renegotiation?

Second, any treaty change will be designed to only affect the Eurozone so the UK's referendum law won't be triggered. So no powers will move from the UK to the EU. But at the same time Britain, as stated by Cameron, wants safeguards that ensure that the Eurozone "Outs" are protected from the growing integration (and potential power) of the "Ins". So Britain (and the other non-Eurozone countries) want something from these negotiations, but they will not be offering anything on the integration side. Whie Germany and other Eurozone countries (like Ireland) support a treaty change for the 27, it has already been signalled that the Eurozone 17 could go on ahead with a treaty outside the EU if necessary. When you're in a position of asking for safeguards but not exchanging anything in return, with the possibility that your negotiating partners can ignore you altogether, it's not a very strong negotiating position.

Third, the UK underestimates how controversial returning social policy will be for the other EU Member States. Social policy seems to be portrayed like it is a small add-on to the internal market, but for other Member States this protects their social policies and welfare states from the opening up of their markets. Why should the special access the internal market provides be given to the UK if they are going to engage in race-to-the-bottom social practices that would harm their welfare states? To put it in terms of the UK's human rights debate: there are rights and responsibilities, and the UK is increasingly seen as wanting all of the rights, but none of the responsibilities.

So for Britain to successfully negotiate a return of social policy powers to London, they need allies (which they would loose from obstructing a treaty change that both Germany and other Outs like Poland want), be in a position to offer something in return (to reassure other Member States that they won't start a race to the bottom), and a credible negotiating position (i.e. not being dependent on the treaty being passed and the goodwill of other Member States to be a part of the negotiations). I can't imagine that the Conservative backbenches aren't already aware of this (I mean, if they aren't I'd like to see their negotiations!), so it could be a way of trying to force David Cameron into backing an In-or-Out referendum.

Cameron might have more luck with negotiating safeguards on financial services, though the 17 can still threaten to go on ahead without Britain. He'll have to hope that whatever safeguards he gets will satisfy the Tories back home.

Ireland's State of the Nation Address

Ireland's Taoiseach, Enda Kenny, made what is only the 6th state of the nation address on Sunday evening before the new government's first austerity budget (to be announced over Monday and Tuesday). Brian Cowen, the last Taoiseach, was criticised for not making an address, and was probably held back by the memory of another past Fianna Fáil Taoiseach, Charlie Haughey, who famously told the country to tighten its belt while he was far from doing the same in his own life. Ireland's also had some experience of austerity speeches that have been mocked:



Here's Enda's State of the Nation address:



Enda will probably get some credit for making the address, but the devil will be in the detail of the budget, and the debate that follows will be inevitably overshadowed by the actual changes and choices made by the budget. Ireland has been living under austerity budgets for so long that the further cuts and tax increases by the government will be increasingly painful: we've long run out of low-lying fruit.

From a Eurozone perspective, this is the first major signal that the Irish government will accept treaty changes, which it had been opposing as recently as Kenny's visit to Berlin two weeks ago. In many ways the Irish government has been so absorbed by the austerity plan and worried about running a referendum in this climate that it put a bit too much hope in a solution being found without treaty change (and it has raised some valid points about the lack of implementation of all the summit agreements so far). However, there needs to be a better Eurozone system for the currency to work, and treaty change is inevitable if the Euro is to survive. It's a pity that the Irish government's sights are set so low (its main red line is preventing (corporate) tax harmonisation), rather than focusing on putting forward what it wants fiscal union to look like for the whole Eurozone. How we run the Eurozone will effect how we work in the future, and how much solidarity we will want to show with other Eurozone countries (for example, would Ireland be happy with lending money as part of a bail-out to another country [post-current-crisis], under the strict deficit rules being discussed?).

Do we want Eurobonds - and not just for Christmas? How much fiscal policy should be set by the Commission/European Parliament/Council? Lately there has been more discussion about the role the ECB should play, but it does seem as if our politicians will only discuss what "Merkozy" proposes instead of insisting on common ownership. It's not all Merkozy, of course. All Eurozone members will need to agree on the way forward, and the Franco-German proposals are the starting point. But we need to have a better sense of public ownership in the other Eurozone states. The rise of more extreme parties has been most marked in the smaller Member States: if the next treaty change is to solve the crisis it will have to go far enough to create a credible Eurozone and appear just and inclusive enough to be accepted across the Eurozone. It's too much of a gamble for Merkozy to appear to push too far ahead with their own project and then risk rejection in the smaller states which could derail the Euro entirely...

Eurocrisis, Democratic Deficit and the Re:New Conference

Throughout the Re:New Conference references were made to that most European of monsters: Merkozy. Yesterday Sarkozy spoke, and today Merkel has spoken in the Bundestag about Europe and the Eurozone. While European integration - and a new treaty - was held up to be necessary, Merkel rejected Eurobonds as expensive and unconstitutional. At the same time, the European Parliament has passed a resolution, declaring that it should have equal powers with the Council over any new features of economic union (such as an EU Finance Minister) so that there is sufficient democratic oversight.

The same day Sarkozy, in Gaullist mode, firmly signalled that any further changes would be purely intergovernmental:

""The reform of Europe is not a march towards supra-nationality," Sarkozy said. "Europe will reform itself by pragmatically drawing the lessons of the crisis. The crisis has pushed the heads of state and government to assume greater responsibilities because ultimately they have the democratic legitimacy to take decisions."

"The integration of Europe will go the inter-governmental way because Europe needs to make strategic political choices.""

At first sight the battle between Merkozy and the EP might seem to be a foregone conclusion: the duo have sidelined the EU institutions so far in the Eurocrisis and Treaty change is itself intergovernmental, so how much power can influence can the Parliament, with falling turnout numbers, and the Commission, which has hardly been bursting with energy, bring to bear. However, intergovernmentalism favours secretive processes and large countries over transparency and smaller countries. I've written before about the faultlines dividing the European debate, and these will spur some Member States to fight for more supranationalism.

In the long run intergovernmentalism will be a mistake as is disempowers citizens and promotes a cynical them-and-us culture between the rest of us and the Paris-Berlin duopoly that is unhealthly for European politics and damaging to democracy. But it's also damaging in the short term - by going for intergovernmentalist solutions, the suspicion and anger with the Franco-German concentration of power will crystalise: should this summitry with France and Germany at the top - which has hardly worked wonders during this crisis - be not just for crises, but for life? Without QMV, Commission oversight and Parliamentary input, the majority of the Eurozone and Non-Eurozone states and citizens are threatened with the prospect of being marginalised within the EU structure. So far we've been working ad hoc, pretty much outside of the treaties. Now we're talking about committing ourselves to these governing structures by treaty.

That's not to say that the European Parliament is a great cure for this democratic deficit: though over last weekend I saw a PES that spoke like an opposition and proposed a different vision for the EU, as an opposition the PES, and other Europarties, remain too detached from citizens and even their national parties. It seems to me that supporters of a more democratic EU need to focus more energy on reforming the Europarties so that they can seriously propose new policies and debate them in public. This requires not just some autonomy on the part of the Europarties - you could argue they have autonomy at the moment since the national parties don't pay much attention to them for policy matters - but commitment from the national parties to help shape, debate and campaign on these policies.

With the PES in opposition almost everywhere in the EU, this should be easier for them to achieve. Could a basic common platform not provide a voice for the centre-left during the crisis both in Member States and at the EU level? The divisions between national parties and the protection of national party autonomy from European commitments are great and understandable, but it's hard to see how the centre-left - the opposition - can effectively put forward their own narrative and solutions if they cannot build a European coalition, even on a basic level, that can make their visions at a national level sound realistic. Given that pan-european crises of this scale are - thankfully - rare, I wouldn't expect much progress to happen in this area, which is why I hope a contest between Europarties for the Commission Presidency would push politics further along this path. But that's too long-term, and this crisis is progressing too rapidly.

I'm not a member of a political party, but if I believe in promoting democracy at a European level, then perhaps I should become one and add my voice, in whatever small way, to the need for a better European politics. Because we can't just hope that it will simply emerge to inspire a demand for it; rather those of us who want it should demand it, and demand it loudly. Despite my criticisms of the lack of policy at the PES Conference, I did see some vision there. If we want to have an inclusive EU rather than a concentrated summitry, then we'll have to strengthen our Europarties so they can represent us better.

Vote for the Irish Council Presidency's logo

You can now vote for the logo of the Irish presidency of the Council of the European Union (to be held in the first have of 2013; currently held by Poland, but Denmark will take over in the new year). You can find the designs and vote here.

I liked the spirals and connections designs best, but as I can only vote for one, I went for the connections one.

Re:New: Europarties and Primaries

When I wrote about the Re:New conference and the lack of policy at the PES level on Friday, I wanted to find out more about the Europarty and how things are done. Luckly there was a workshop on Transnational parties on Saturday, which I attended (annoyingly most of the workshops I would be interested in were on on Saturday afternoon: I would have liked to have asked a few questions at the citizenship workshop on Zambrano and McCarthy).

Understandably the structure of Europarties mitigated against more unified political platforms being put forward at European elections (and in between). Europarties have evolved over the last 20 years, with political foundations (such as FEPS for PES), and firmer legal regulation for their legal status and funding. While there was some interesting presentations on the history and structure of the Europarties (notably from Erol Kuelachi and Steven van Henke). However, of the three aspects raised by Sebastian von Thuena (1. institutional aspects of Europarties; 2. the legal structure; and 3. the role of the grassroots), the question of the grassroots was picked up on by the audience (which counted a few PES activists among its members). How grassroots activists should work alongside national parties - via exchanges and uring election campaigns - was debated. Apparently there have been PES activist exchange programmes trialed that haven't been very successful, and national parties are unsure of how to react to PES activists (in some cases perhaps fearing that the PES is a competitor for institutional control within the party).

I was disappointed that the PES primaries weren't being discussed, so I asked:

"What could be the effect of the PES presidential candidate (and does the PES see it as more parliamentary or presidential)? It could have a chain effect (if there’s enough momentum) – 1. Would it take away from activist influence on the manifesto? 2. Would it bring the Commission closer to the EP? 3. Would it mean coalition Commissions and provoke reorganisation in the Greens, etc.?"

There wasn't enough time to address all of these points, but Steven van Henke pointed out that the PES would confirm both the candidate and the programme, raising the prospect of the candidate not being able to stand on their own platform. Originally I had thought that it could push activists out of the role of manifesto-shaping that they had gained at the last election - it will be interesting to see how the PES balances the national parties, the activists and the candidate's view in the joint manifesto.

Another aspect of the PES primaries is their timing. I hadn't noticed anything about the timing of the primaries during my first glance through the procedure, but I've heard complaints about the process being held over the December/January before the election, since it is extremely difficult to organise events for national parties at that time (at least, I have heard these complaints from the Irish Labour activists; and Irish Labour has been one of the most enthusiastic parties for PES primaries). Together with the uncertainty of the number of parties which will hold direct votes and whether the candidate will have much control over his/her policy platform, the PES's seeming political coup could be strangled at birth. Since it has the potential to boost not only the PES but also push the other Europarties to be more coherent, it would be a big loss to EP democracy.

Re:New Conference in Brussels - Renewal for the European left?

The plight of the European left is well known by now: despite the victory in Denmark a few months ago, the left has lost Spain, and now doesn't hold any of the 6 major Member States (the big 3 plus Italy, Spain and Poland). So does it have the ability to fight back and put forward a viable alternative political vision? The Party of European Socialists are holding a Re:New conference in Brussels (25th-26th November), with NGOs and Trade Union representatives present as well as activitists.

First of all, the PES have decided on their primaries for selecting their Commission President candidate for the next European elections (PDF; Ralf Grahn has already commented on this here). A good step for European democracy, as PES are now committed to fielding a candidate, whereas they failed to providean alternative to Barroso in 2009. However, it is still left to national political parties to decide wheather they will hold a direct vote with their members or indirectly consult them. This could have a big effect as the envisaged proportional voting (that the votes per member party are distributed proportionally among candidates rather than a first past the post system where candidates could win all the votes of a national party at the PES level) could be undermined if few parties adopt direct votes. Political pressure through example by more democratic parties seems to be the hope behind this compromise. Still, it commits the PES to a more European campaign centred around winning power in the Commission.

So does there seem to be a PES alternative to the European EPP majority?

Probably not, if you consider a proper alternative to be a coherent policy platform. Though the PES seems to be fairly united around Eurobonds and the financial transaction tax (although UK Labour's Emma Reynolds looked a bit uncomfortable as she defended the Conservative-led government's position that an FTT would have to be global as the Labour party's own position), there doesn't seem to be a fully thought through programme yet. Added to this difficulty is the leftwards drift of the EPP (which can be seen by Barroso's SOTEU speech and the increasing promotion of Eurobonds and FTTs in right-wing circles). While the PES can berate the EPP and "Merkozy" for being too little, too late at every turn, it does not make up for the lack of a concrete plan. Not that the EPP has a plan, but if the left wants to well, it has to earn it rather than hope to profit from anti-incumbant votes.

The first workshop I attended was "Progressive Policy Responses to the Crisis". Apart from Eurobonds and FTT, barely any policy was mentioned. The failings of the right and the need for closer European integration were highlighted, but a lot of the hope for the left seems to be based on the French and German elections even though there's a recognition that the crisis is so urgent that key political questions need to be addressed quickly. Implicitly this means that it's up to a leftwing Merkozy, replacing our conservative one, to help solve the crisis, rather than attempt to provide a European leftwing platform in the meantime (and after all, what better time is there for the PES to articulate a vision if not when the left is in opposition and Europe is on everyone's lips?).

In terms of immediate policy, the only relevant contribution was from Walter Cerfada, who put forward 3 chages for the next EU budget: 1. that structural funds should be made available to the economically weaker nations without the requirements for co-funding when the money does not exist at a national level; 2. that this budget plans for the 2013 budget too so governments can make longer-term plans; 3. that the European Investment Bank quickly starts to invest more.

The audience very quickly picked up on the lack of policy content and a very challenging question was posed: if the PES has little power within the EU institutions, why don't the PES Commissioners resign in protest at EPP policies? There wasn't really an answer. If PES leave the Commission, then it would mean something else for their Commission presidential campaign too: that the PES would believe that the Commission should be politically coherent (and closer to the EP), not just the Commission President.

George Papandreou was actually one of the best speakers at the conference so far. The PES seem to be good at generating vision, but has problems communicating that vision nationally, and putting together practical policies (at least as far as I can tell from this conference so far). Is this a problem of organisation - is the PES too national? What organisational developments are needed or are taking place to make the PES more effective? Hopefully I can find out some more over the next day.

BBC Radio Four: Britain and the Human Rights Act

The Human Rights Act 1998, which transposes the European Convention on Human Rights into UK law, is controversal in British politics: the Liberal Democrats and Labour are for the HRA, while the Conservatives are against. The Conservatives want to bring in a British Bill of Rights, but it has never been spelt out what this means in practical terms. Will it contain less rights than the ECHR? More? Would the UK leave the ECHR (and therefore the Council of Europe - which only junta Greece has ever done)?

BBC Radio Four has produced an interesting programme this week on Britain and Human Rights, and what the practical legal implications of moves to change it are. You can listen to it here.

If the link doesn't work, try looking the programme up on the BBC Radio Four website - though you have to be in the UK to use the iPlayer, but I've been able to listen to BBC radio programmes through their websites from outside the UK before.

Cardiff's Controversal Court of Auditors nomination

Last week the Irish Department of Finance discovered that it had counted the money borrowed by the Housing Finance Agency, leading it to overstate the Irish Government's debt by €3.6 billion. The Secretary General, Kevin Cardiff was called before a parliamentary committee to account for the mistake, but the controversy has rumbled on since Cardiff has been named as the government's nominee to the EU's Court of Auditors, which oversees the EU's budget.

Cardiff's departure is being explained in a few ways:

"The Fine Gael-Labour coalition made little secret of its desire to move those associated with the 2008 bank guarantee into different roles. [Note: He was in office at the time]. Mr Cariff’s appointment not only frees up the most senior post in the department, but also replaces a Fianna Fáil nominee at the court of auditors.

[...]

In Government circles, it had been widely anticipated the post would go to a political nominee from either Fine Gael or Labour. The speculation in Dublin was that the party, which did not receive a Luxembourg post, would have a claim on Ireland’s seat in the European Commission when next it falls vacant.

Sources familiar with the deliberations in Dublin said it was far too early in the life of the Government to consider appointing any Minister to the post. Given that the nomination is subject to the approval of MEPs, the Government was keen to nominate a figure with a financial background."

Cardiff has countered the criticism leveled at him by opposition TDs that he is unfit to take the CoA job considering the accounting mistake made under his watch:

"In his response to her direct criticism, Mr Cardiff said that as accounting officer he accepted responsibility and would act on the error to ensure it would not happen again. “If an accounting officer were to resign every time there was an error you would have no accounting officer. If they were to resign after every major error you would only have lucky accounting officers left,” he said."

However, it's not just the opposition that's exercised by the nomination, MEPs from the junior coalition party have spoken out against his appointment, as has UKIP MEP Marta Andreasen:

"Former chief accountant of the European Commission Marta Andreasen spoke out against the Irish Government and Mr Noonan yesterday for their support for Mr Cardiff. The UK Independence Party MEP said the Government was behaving irresponsibly by backing someone whom she believes is unfit for the European job."

It will be interesting to see how closely the Budget Control Committee will examine his record tomorrow.

Democracy and the Eurozone Crisis

There will no longer be any referendum in Greece on the new Eurozone deal, and a technocratic-led national unity government will take over before elections can be held in February. (And a good thing that there will be elections - Greece needs to confront its economic future in a way that the Greek people will buy into the responsibility of the decisions that need to be taken). Now that the referendum has been called off, it's taken as a indictment of Europe that France and Germany could pressure Greece to drop the referendum by saying that the money will be withheld unless a referendum would return a positive result.

This is a very strange argument. Surely it wouldn't be taking Greek sovereignty and democracy seriously if the Eurozone continued to loan Greece money and expect them to implement austerity measures regardless of any referendum they held? And the implication that the Eurozone should be willing to loan money to Greece regardless of Greece's commitment to any deal suggests that the rest off the Eurozone deserves less of a say. While a partial default within a Eurozone deal or a total default outside any Eurozone loans isn't an attractive choice, Greece cannot change that choice by elections or referendums: democracy is when people come together to decide what to do in the situation in which they find themselves. Sadly, for Greece and the rest of the Eurozone there are no good options.

Fintan O'Toole has an article in The Irish Times about the disconnect between capitalism and democracy:

"And this isn’t just a simple matter of the Merkozy monster lording it over us little PIGS. For at this historic moment, even the German chancellor is little more than a cipher. She’s caught in the democratic crisis too. Remember this time last year when Angela Merkel started to make noises about bondholders sharing the pain of rescuing the banking system? She had to back down very quickly and make it clear that she didn’t mean present bondholders – heaven forbid. Even the German chancellor isn’t allowed to say certain things."

I don't entirely agree with him, but I do think that markets and globalisation has grown and proceeded to such and extent that it benefits us to make some market and economic decisions collectively in the EU. Yet the EU, despite the almost co-equal power of the European Parliament, has a huge democratic disconnect. With the Treaties unequipped to deal with the Eurozone crisis, the approach to solving it has been intergovernmental, which has caused tensions between small Member States and non-Eurozone states who have the most to loose politically from governing the Eruozone from the Eruopean Council, and big Eurozone Member States (primarily France and Germany) who are better placed to have the most influence.

It might take ages to finalise a new treaty to equip the EU institutions to better deal with fiscal union issues, but it is most likely to be produced after the major crises are solved (or stabilised, if we're lucky enough). European issues have never been so widely discussed in Europe than they are now: since the Euro and the future of the EU is such a major issue, and the European Parliament has gained more powers since the last election in 2009, it might be worth having another European election. It would provide an opportunity to involve citizens more directly in the debate over what needs to be done and can also focus on the Parliament's new power. Though the EP isn't in a prime position over the EFSF or future fiscal union, an election would give the Parliament (and the Europarties) a stronger mandate in their proposals, and could be a useful way of gauging (informed) public opinion before embarking on further treaty change.

European Faultlines

Last year I blogged about the European outlook of the Dutch government. With the Eurozone crisis still rumbling on, some of the faultline themes are well established: the degree of fiscal union and the role of the ECB, the core versus the perciphery, austerity versus stimulus, Eurozone members versus non-Eurozone members, etc. Apart from the left-right question of austerity versus stimulus, most of the major questions are about integration and institutions: how much do we integrate, how do we integrate, and what will be the consequences of integration. So a lot of the old instutitional debates are being revived in the background.

First, intergovernmentalism and supranationalism remains a big question. The influence of France and Germany in the crisis is obvious, and in some ways justified given the financial commitment they are making on behalf of their citizens, but it does means that the debate on the solutions to the crisis are incredibly narrow. It may be better for Greece to remain in the Eurozone deal despite the devestating effects of austerity than to default and bring in an automatic and deeper austerity as the Greek government fails to be able to finance its government spending. However it's not necessarily the best policy for Greece or for the Eurozone: yet it remains up to discussions in certain Member States to come to that conclusion before anything changes rather than an open pan-Eurozone debate permitting a more dynamic an informed action. This is particularly the case as the deepening crisis in Italy and elsewhere is connected to the need for recapitalising and reforming Europe's banking and financial sector.

The European Council has gone some way to tackling this crisis, but the constant summits has meant that the Commission and Parliament are being sidelined. Since the treaties don't really provide for the EFSF (and the EFSF is probably contrary to the treaties, but sovereign states are quite practised at rewriting the rules), the Commission and Parliament are very limited in what they can do. But it would be a mistake to think that only the Commission and Parliament want more power for themselves: it is in the interest of many Member States for treaty changes to transfer powers to the Union more properly to deal with these crises. For small Member States, majority voting and a strong Parliament and Commission are safeguards against the overpowering influence of the big Member States, while for non-Eurozone Member States, it is better to anchor the Eurozone within the wider EU in order to prevent a core Eurozone from driving internal market and other policy. This level of integration would require a new treaty with sufficient fiscal and political union elements to work - if the institutions can't deal with the crisis even with a treaty change, then the European Council, dominated by the big Member States, would again step in.

Second, the European Council as an institution is asserting itself over the Commission, in a way that has similar big-versus-small states implications, as well as challenging the newly empowered Parliament. (We're lucky that Tony Blair didn't get the European Council Presidency) The Commission and Parliament will probably continue to grow closer together (or, the Commission will try to co-opt the Parliament in its battle with the Council, while the Parliament tries to co-opt the Commission in its battle with the Council).

Third, there is the Eurozone/Non-Eurozone divide. It's not a clear divide between those states, but a divide on whether or not to include them and how far to include them. The fear is that closer integration within the Eurozone will mean that non-Eurozone countries will have less say within the EU generally, as Eurozone countries co-ordinate more. Ireland, the Netherlands and Finland want to include the rest of the EU as much as possible: for the Netherlands and Ireland this is about including more free market-orientated countries, but it's also about diluting the influence of France and Germany and strengthening the position of the small states. For non-Eurozone countries to secure the position, it would be better to ensure that new institutional changes are committed to the treaties in a way that limits the consequences of the change to the Eurozone as much as possible (though multispeed Europe will mean that some Member States will end up with more political say than others). As long as the changes are reached ad hoc through the European Council and the Eurozone Group, the more exclusive the decision making will remain.

However the UK may be the spanner in the works. While ensuring the position of the non-Eurozone members means that the focus on treaty change should be on limiting the scope for Eurozone decisions to affect the internal market without some general EU involvement, the UK moves to gain further opt-outs could push Eurozone members to make any new treaty Eurozone-only. The UK may find that it cannot count on non-Eurozone countries for support in getting new opt-outs if they feel it could damage their chances of securing their positions in the EU.

The Irish Finance minister has given a speech at the IIEA last week outlining some of the Irish positions on the EU and the Eurozone which reflect some of these faultlines:

Irish President Michael D

Last week Ireland elected its ninth president. Though the role is highly ceremonial, the election campaign was hard fought between 7 candidates: the widest choice in the office's history. At the end of the count, Michael D,* an academic, poet, and long-time elected politician, became the first "political millionaire", with over a million votes. He has a strong track record on fighting for human rights, and is a great orator.

Here's his acceptance speech (skip to 3:00 if you want to leave out the Irish language part and the thank yous):



As a resident of Northern Ireland, I didn't have a vote in the election (extending the franchise north of the border and to the Irish abroad will probably be considered as part of the political and constitutional reform agenda in Ireland). However, over the last 21 years the presidency has allowed Ireland to redefine itself and its identity in a very positive way - in terms of inclusion and the peace process - and Michael D clearly aims to continue this from his platform of inclusive and active citizenship. While people and the media complain that the post has little power, it's highly political role (despite being removed from daily politics and policy) that offers a powerful way for citizens to engage in what their identity is and what their republic means to them. Which is why I think this right to elect the head of state is an important and positive thing, why I take monarchists' claims of unity and symbolism with a certain amount of scepticism, and I look forward to Michael D's presidency.


* He will probably be called Michael Higgins/President Higgins abroad, but he's known by his middle initial in Ireland. What it stands for is a popular pub quiz question (Daniel, if you're wondering).

Papandreou's Gamble: a tale of two defaults

It's clear that Papandreou's decision to hold a referendum on the latest Eurozone agreement, without even informing his cabinet of his decision, is a massive political gamble to restore his authority. The further reduction of the government's parliamentary majority, and the firing of the entire chiefs of staff reveal the instability of the government.

On the European level the problem with the referendum is not so much that people are being given a say - though there are probably elements that argue that, there needs to be a democratic buy-in of the Greek people into any plan for it to work properly - rather that it crystalises the issue. When presented with the referendum the Greek people will be asked to say yes or no to the deal: a yes would mean buying into the process so far and imply support for however it evolves; a no would mean the end to the loans, complete default (along with the instant austerity that the inability to fund the deficit implies) and probable exit of the Eurozone.

While this could be a clever move by Papandreou to bounce the electorate into supporting the government in a choice between two defaults, for the Eurozone it raises the spectre of a non-negotiatable stance, and a toxic debt fallout that will force a decision over Italy. Though Greece probably needs more haircuts over time and a plan for growth so it can service its remaining debts and rebuild its economy, this slow evolution of the Greek Crisis (though not necessarily inevitably moving in that direction) has been short-circuited by the referendum announcement. A "No" would mean that Greece would be dropped so the Eurozone could deal with Italy.

There has to be a real buy-in by the Greek people in the solution to the crisis: with all the strikes and the uncollected taxes, Greece can't recover unless there is a majority for reforming the state and the economy. With, as EUObserver reports:

"Polls over the weekend put Greek popular opposition to the new EU deal at 60 percent and the viability of the government is under threat from rolling general strikes and frequently violent protests that reach almost every quarter of the country.

At the same, polls put support for retention of the euro at 70 percent."

the binary choice of default within or outside the Eurozone might pass, and offer the Greek public to decide whether or not they want to be part of the Eurozone deal - and how much they want to be part of the Eurozone. But in the absence of a real debate about other options - however workable - that a parliamentary election might allow (essentially forcing the government and opposition to set out their alternatives), it's hard to see how much a "yes" vote would signal acceptance of the Eurozone's direction, and how much it would constitute a democratic buy-in by the Greek people.

It may turn out to be a masterstroke by Papandreou: giving the people a greater say and building a wider consensus in society, or it could backfire, either as a No, or as a Yes with no real substance to it. In any case, the Greek people are caught in a tale of two defaults, with an unenviable decision.

Edit: While I'm slightly sceptical of the referendum because of its limited choice, Polscieu has written a great post in favour of it.

Happy 3rd of October!

It's Leiden's Ontzet and Germany's reunification day (or day of German unity). Have a great day!

Financial Transaction Tax and Multispeed Europe

The UK government's stated opposition to the FTT was hardly unexpected. With the City of London acting as the financial heart of the EU, and a sacred (cash) cow for the UK government in terms of tax receipts, the UK was always going to be resistant to the idea. Barroso, in his State of the Union speech, seemed to recognise this and generally supported a two-speed (or multi-speed) EU.

When the national interest is invoked as a reason for a policy position, it shuts down debate. However, while national interest is part of it, since the UK government supports the idea of FTT in principle, provided it is applied globally, there has been a bit more debate on the idea. I have to admit that I don't fully understand the mechanics of how the tax would puch financial businesses outside the EU and outside the UK: my understanding is that the proposed tax would be applied to transactions where one side of the transaction was in the EU - so even if the financial businesses and banks moved outside the EU, they would have to pay the tax if they wanted to do business in the EU. It would only make sense to move if the business did most or all of its business outside the EU. However there are good points on the fact that a large proportion of the tax would be collected from the City of London, and this would be unfair if the Eurozone mainly benefited. If the income was used to build a safety net for the banking and financial system across the EU (to reduce the burden on taxpayers in the real economy), than that would probably be fairer.

While the Labour party in the UK will probably support the government's resistance, it would be interesting if they decided to support an EU FTT in some form - after all, their leader Ed Miliband has referred to businesses which were "bad" for the economy: would the FTT not make sense in rebalancing these ethical issues by making the financial industry pay a bit more tax to insure against the danger of being (ultimately) underwritten by the taxpayer? The BBC's Robert Peston has an interesting take on the FTT here.

In any case Member States have a veto on the matter, so the UK can block it. But the implications for the EU of a Eurozone FTT haven't received much attention. We already have a multi-speed EU, with some countries in or out of the Euro, the Schengen Zone, the EEA but not EU Members, etc, but these have been in different areas of integration. If you start to adopt different speeds to the internal market in a way that affects the four freedoms, then it could cause some political headaches. It would raise the EU's West Lothian Question. Why should MEPs from the slower countries have votes in areas where their countries aren't affected? Already the British Commissioner couldn't (politically) be the Commissioner for monetary policy since the UK is not a Eurozone member. The more the Eurozone countries pull ahead, the less influence those outside Euroland will have.

The Commissarial Speech 2011

Barroso has just delivered his State of the (European) Union speech. Last year I pointed out that it was a work programme speech setting out the legislative programme for the year ahead - a bit like the speech from the throne in European constitutional monarchies. This year the speech actually reflected the State of the Union title a bit more, though it was still a Commissarial Speech.

The speech had two themes: the economic crisis and the EU's role in the world. On the economic crisis, Barroso proclaimed the Commission to be the economic government of Europe, and announced several measures on market regulation and on jobs and support for growth. Barroso reminded the Parliament of the Single Market Act announced last year, and urged that it be fast-tracked through the legislative process. He also pointed out that the services legislation had not yet been fully implemented by Member States, and claimed that implementation would spur growth in the economy.

The most notable announcements marked a shift leftwards - perhaps made possible by the leftwards shift of the EPP following the departure of the British Conservatives, and the economic and political pressures of the crisis. Growth is a goal. Barroso announced that the European Investment Bank needed to be reinforced so it could lend to the real economy (though no detail was given on how), and called on an "Erasmus for jobs" which would help with youth unemployment by making more internships and work experience available (however no plan has been put forward yet, apart from calling for industry, national governments and the EU to work together on such a scheme). Project bonds will be launched to finance green projects and transport projects, which will stimulate the economy, while Barroso noted that the Commission will bring forward Eurobond proposals. Some forms of Eurobond will require a treaty change, while others won't. The treaty-friendly Eurobond was coined the "Stability Bond".

The biggest announcement was his support for a Financial Transaction Tax (FTT). This was were Barroso showed the most rhetorical energy on the economy: it is a matter of fairness that the financial industry contributes when the ordinary taxpayer has pumped so much into the sector. Is it fair, Barroso asked, to make the farmer pay more in taxes when they have already contributed so much? However such a tax would require unanimity in the Council, and where it would face a lot of opposition. Given that tax sovereignty was such a big issue in Ireland during the Lisbon Referendums, it might even lead to a referednum, should it come to a Council vote.

This leftward shift is not all it might seem, however. Parts of this plan are hard for the Commission to deliver and may not actually happen (the FTT being the most obvious). But Barroso made passing reference to the need to reform the labour market and pension funds. As no actual plans, or even a direction, were given to these reforms, it will be interesting to see what proposals will surface.

Finally, Barroso made a few more general points on Europe and Europe's place in the world. The Commission would protect citizens' rights, including their free movement and Schengen rights. Nobody wants to see a G2 (of the US and China), but the EU needs to play its part in the world and take more responsibility. The COmmission's role in foreign policy - hard foreign policy, rather than development aid and trade - is quite limited, so Barroso could wax rhetorically here about Europe's potential role without making concrete proposals. He did, however make reference to the need for a European defence industry: though nothing was announced, maybe there will be some form of market reforms of further industry co-operation through the European Defence Agency.

Overall the speech was better than last year's - now we need to see how much progress will be made on these promises.


The Parliamentary Response:

Daul (EPP Leader) improved his performance this year. Though still a pro-Commission waffle (leading me to wonder whether Ashton was listening to improve her French or just tuning out), he said his group would support more public-private partnership in education, training and R&D, where more investment was needed, as well as a job erasmus.

Schulz (S&D Leader), who gave one of the better parliamentary speeches last year, floundered this year. Maybe it was because the key issue of the FTT was taken by Barroso, but there was no discussion or analysis of the proposals Barroso put forward, and no questions on the labour and pension reforms Barroso mentioned in passing. Instead of playing a good opposition, Schulz critiqued the use of "19th centuary Vienna Congress methods" of diplomacy which was being "bullied by the markets" - it may be true, but Schulz should be holding Barroso to account, and proposing alternatives, rather than devoting the whole speech to talking about the "other place". Politically, Schulz even failed to stake a claim on the FTT, despite the Party of European Socialists (that make up the vast majority of the S&D group in Parliament) campaigning on the issue.

Verhofstadt (ALDE), the Liberal group leader, has become the federalists' Farage, and focused entirely on a pro-intergration message. Like the S&D, the Liberal leader's central policy idea of the Eurobond was given a place in Barroso's speech, so maybe it left him without anything to say on the actual policies in the speech. The best line he delivered pointed out that it was all very well telling the Parliament about these plans, but "Now you have to say it in the other place" - the "other place" being the European Council.

Zahradil (ECR leader) is the only change in leader since the last speech (an indication of the political turbulance in the right wing group over the last year). While he agreed with Barroso's market measures, he attacked the proposed FTT, saying it would drive financial industries abroad. The rest of the speech attacked the federalism of the other groups, and the Euro, asking if some countries would leave the currency union and if other countries would reconsider their commitment to joining. Though he did not want the Euro to fail, he sharply criticised any of the proposals to change things in the Eurozone as increasing the EU's powers. This provides a handy political cover for playing up the anti-federalist credentials of the group, while not providing any alternatives on how to solve the Eurozone crisis.

Harms (Greens/EFA) hit out against the lack of action on sustainable development since 2007/8 when it was considered a priority, calling the proposals: "Small scale measures, taken too late". Bisky (United Left Leader) said he supported the Commission as far as it brings in good financial regulation, FTT and Eurogroup measures. He also spent a lot of time criticising the intergovernmental approach to solving the crisis. Farage (EFD) said that Barroso was doing more of the same of what was failing, and attacked him for being unelected. He said that people wanted trade, European co-operation, to work in other European capitals and Erasmus but without the EU. I've already written about the differences between free trade and the internal market: what Farage is proposing seems to be the end of the internal market - if so, he should come out and say it and campaign on it, instead of pretending that the same level of trade can be maintained without the EU structures. In his responce, Barroso retorted that Farage had failed to get elected to the UK Parliament, and that he should campaign for withdrawing from the EU there, since the European Parliament couldn't grant it.


Scoring Parliament

It was hardly the most inspiring parliamentary response. Little attention was paid to the actual policies (effectively limited to the ECR rejection of FTT and the Greens/EFA criticism that the project bonds plan and other measures weren't good enough), but there was a lot of time wasted on bashing the Council for being too intergovernmental. They had the Commission President in front of them! This was their opportunity to stake out their policy positions for the year - what they wanted to see happen, what they thought of the Commission's plans - but they failed to articulate an alternative. This might not be too serious for the EPP and ALDE (or even the ECR), which supported Barroso as Commission President, and are essentially the Commission's political base for delivering its economic and market policy. However the S&D, Greens and United Left should have been doing more do provide an alternative.

Verhofstadt and Farage have essentially become copies of each other for this set piece event on their respective sides. However Farage can rest easy knowing that he's done his political job by delivering a punchy speech, even if it doesn't do much in holding the Commission to account. Verhofstadt, on the other hand, advocates a position that needs strong and clear articulation, and which also demands a role of questioning the Commission and holding it to account (even as a pro-Commission party). He didn't measure up to this role.


(How did you score in Barroso Buzzword Bingo? You can read the Twittersphere comments on the speech here: #SOTEU).

Barroso's Buzzword Bingo: 2011 Edition

It's that time of year again, with Barroso's State of the [European] Union address. At 9:00 a.m. CET on Wednesday this week, Barroso will make his speech to the European Parliament, setting out his vision (or lack thereof) of the future of the still-crisis-stricken Union.

Last year we ran a Barroso Buzzword Bingo over at Bloggingportal, and this blog is joining in for this year's round. To play the game, you pick 10 words or phrases that you think will pop up in the speech, and once you've got them all - bingo! You can watch the speech live here, and comment on Twitter with us (and the new official State of the Union Twitter account) using the #SOTEU hashtag. Let's hope an MEP playing along will shout out bingo in plenary.


Here's my list:

1. Solidarity.
2. Robust action.
3. Economic crisis.
4. Fiscal convergence.
5. Security.
6. Competitiveness.
7. European Added Value.
8. Community Method.
9. Innovative.
10. Federalism/Federal (a risky one, but it might be a way of trying to get some national press attention).

You can add your own list over at Bloggingportal (& in the comments below!) - if you need inspiration, Jon Worth and Polscieu have already written theirs.

Europese Dag van de Talen

Het is de Europese Dag van de Talen! Vandaag is dus en goede dag vreemde talen te praktiseren: kijk naar een Franse televisieprogramma, praat met een Duitse vriend (of vriendin), lees naar een Spaans krant, of luisteren naar de Nederlandse radio.

Heb geen zorg, of je en vreemde taal niet vloeiend kunt spreken!

Veel succes!

Deal on the European Protection Order Directive

The Council and Parliament have reached a deal on the European Protection Order Directive, originally proposed by Member States, ensuring that it will sail through the first and second legislative readings. The EPOD is aimed at protecting people subject to protection orders under their national criminal law, while allowing them to exercise their free movement rights (draft legislation PDF here). The Directive would apply to protection orders made by national authorities under criminal law (there's a separate measure dealing with civil law), which impose restrictions on persons that pose a risk to another such as:

"(a) a prohibition from entering certain localities, places or defined areas where the protected person resides or that he visits;

(b) a prohibition or regulation of contact, in any form, with the protected person, including by phone, electronic or ordinary mail, fax or any other means; or

(c) a prohibition or regulation on approaching the protected person closer than a prescribed
distance." [Article 5]

Protection orders would be issued normally by Member States under their national law, but if the person they are meant to protect resides in another Member State or wants to move to another Member State, they can request a EPO to extend the protection in the original national protection order so they are covered in their host Member State. So the proposed EPOD works on a modified mutual recognition model - the national measures made in one Member State are recognised and enforced in another Member State, though in this case a request for a European version would need to be made, and then the executing Member State would transpose it via a national measure. The Directive would only apply to victims/potential victims of crime, and not witnesses, so it isn't part of some European witness protection scheme.

From a legal perspective, this modified route to mutual recognition is quite interesting, and shows some movement on the use of mutual recognition measures by allowing for the difference in Member State's legal systems (a mix of criminal, civil and administrative measures). I haven't taken a close look at the jurisdiction/competence issues around the mini-Member State directives that will be EPOs, however. Hopefully the Parliament hasn't missed anything it might later regret...

Schengen Wars 2

Romania and Bulgaria's Schengen aspirations are being put on hold again, with the Netherlands and Finland opposing the phased introduction of the two countries into the border-free zone due to concerns over their levels of corruption. Before the vote, Romania blocked tulips from being imported across its border. Their accession was blocked earlier this year in January, which also saw inept diplomacy by Romania.

So are the concerns over the levels of corruption in Bulgaria and Romania justified? The Commission helps and monitors the reform and implementation of changes in the justice system required by EU membership through the "Co-operation and Verification Mechanism" (or CVM). The latest reports on Bulgaria (PDF) and Romania (PDF) were delivered in July. Both reports documented progress, but there's still a long way to go.

The Bulgarian report raises concerns over corruption and over accountability of the judiciary (p.3-4):

"Since last summer, a number of acquittals in cases involving high-level corruption, fraud and organised crime have exposed serious deficiencies in judicial practice in Bulgaria. These deficiencies have not been properly analysed or followed up by the leadership of the judiciary, the Supreme Judicial Council, the General Prosecutor and the President of the Supreme Court of Cassation. Although the revised Judicial System Act adopted in December strengthens the judiciary's accountability, the law has not yet been implemented as intended. The quality and transparency of several important appointments within the judiciary since the beginning of this year have been questioned, leading to unprecedented public protests and a debate on possible constitutional amendments. In addition, allegations of corruption within the judiciary are still not pursued in a systematic way as recommended by the Commission.

[...]

Judicial appointments still lack the necessary level of transparency and credibility. An important senior appointment by the Supreme Judicial Council in November 2010 raised concerns as regards the lack of transparency and competitive character. The entry into force of the newly amended provisions of the Judicial Systems Act in
January 2011, has unfortunately not yet improved the situation as regards senior appointments, which have been still carried out under the old rules and lacked real assessment of the professional qualifications, managerial skills and personal integrity of candidates. Furthermore, a recent nomination was followed by allegations of conflict of interest and procedural irregularities in an ongoing trial handled by the successful candidate. As a protest, two members of the Supreme Judicial Council resigned and criticised the appointment decisions as pre-determined. The subsequent mobilisation of professional associations of magistrates and civil society calling for reform of the Supreme Judicial Council sends an important signal of support for judicial reform. Recommendations by civil society to hold public debates and announce the names of candidates at an earlier stage are laudable. The appointment of highly competent and motivated magistrates of unquestionable integrity via transparent procedures, in particular for the new specialised court for organised crime, is indispensable to successfully implement judicial reform.

[...]

Criminal investigations against magistrates are still not systematically launched by the
prosecution upon allegations of corruption. The decision of the Supreme Judicial Council in June to involve a magistrate with a disciplinary record in the recruitment panel for the new specialised criminal court raises serious concerns. Overall, there is a lack of consistent disciplinary practice. These problems remain a major factor undermining public trust in the judiciary."

Policing in the area of organised crime is also an area of concern (p.5):

"In spite of persevering police actions to tackle organised crime, the overall results need to be significantly improved. Although the joint team on organised crime achieved several indictments related to important organised crime-groups and some convictions have been rendered, other important cases have been concluded with acquittals since the Commission's last annual report. In appeal, severe detention sentences have been pronounced but not yet enforced in one emblematic organised crime case. Weaknesses exist in the collection of evidence, the protection of witnesses as well as in investigative strategies, comprehensive financial investigations and the securing of assets. The General Prosecutor should systematically analyse the reasons for acquittals in high level cases, make recommendations for the handling of future cases when shortcomings in the procedure have been identified and appeal the acquittal decisions when it appears that the Courts did not properly assess the evidence provided."

The report notes a lack of "convincing results" regarding corruption, with cases against former ministers and MPs, and cases involving fraud of EU funds ending in acquittal (p.6):

"The analysis of some of these cases by the Commission and independent experts demonstrated serious weaknesses in judicial and investigative practice. These weaknesses mainly concern the collection of evidence, the protection of witnesses and the general lack of investigative strategies, comprehensive financial investigations and securing of assets. Coordination within the prosecution and between the prosecution and the police should be improved. These weaknesses are compounded by an out-dated Penal Code. Court practice is permissive and excessively cautious, overly attentive to procedures at the expense of delivering justice. While the revision of the Penal Code is advancing, immediate corrective measures, such as the use of interpretative rulings by the Supreme Court of Cassation or legislative amendments should be considered, since the new Penal Code cannot be expected to enter into force before late 2013."

The Romanian report shows some significant improvements, as well as highlighting areas that need a lot of progress. I won't quote from the report to the same extent as the Bulgarian one - I'd recommmend reading both to get a fuller picture of the situation in both countries - but I'll quote to summary paragraphes from the start (p.3):

"Since the Commission's last annual report, Romania took significant steps to improve the efficiency of judicial procedures and continued preparations for the entering into force of four new codes which are the foundation for a modern judicial process. In advance of the implementation of the new codes, the Small Reform Law has brought improvements for the celerity of the judicial process. Romania also responded swiftly to the Commission’s recommendation by adopting a new legal framework for the National Integrity Agency. The National Integrity Agency has been operational under this new legal framework and started to re-establish its track record of investigations. Although not part of the CVM benchmarks, the authorities decided to carry out reviews of the judicial system and of public procurement and to make an evaluation of anti-corruption policy. During the same period, the National
Anticorruption Directorate (DNA) showed a continuously convincing track record in the investigation of high-level corruption cases.

Despite this progress since July 2010, consistency and results in a number of areas remain a challenge. Progress in the fight against corruption still needs to be pursued. Several important high-level cases remain delayed in court for several years and have also seen little movement during this period. Urgent action must be taken to accelerate these trials and prevent them being struck down because of reaching statute-barred periods. The fight against corruption should remain a top priority and be coordinated with the help of a new comprehensive and robust anti-corruption strategy. Urgent measures are needed to improve the recovery of the proceeds of crime, the pursuit of money laundering and protection against conflict of interest in the management of public funds. Better results should be demonstrated in the confiscation of unjustified assets and in delivering dissuasive sanctions for incompatibilities."

Though the domestic reasons for blocking Romania and Bulgaria's phased entry into the Schengen Zone may have more to do with political pressure from the far-right, there are real concerns over the handeling of corruption in romania and Bulgaria. It's true that both countries meet the technical requirements for entry, and that adding this judicial and policing requirements is moving the goalposts, but these issues do need to be tackled as obligations of EU membership. While the politicking might be distasteful - and condemned by both the EPP and the S&D groups in the European Parliament - there is truth to the contention that it's harder to get EU Member States to comply with EU conditions once they're in the club.