Monday 7 November 2011

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:


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