Return of the Currency Commissioner?

The Commission has just launched a blueprint for Economic and Monetary Union (PDF). I haven't had time to read it yet, but from the EUObserver article, it looks like the idea of a Currency Commissioner has returned:

"This time frame would also see "further budgetary coordination (including the possibility to require amendments to national budgets or to veto them)," says the paper.

[...]

Other steps to consider would be giving "clear competence for the EU level to harmonise national budgetary laws and to have recourse to the Court of Justice in case of non-compliance." Final steps to full economic and monetary union would only be taken in the "longer term" and would require "major treaty reform" suggests the paper.

This would likely include a possibly large central budget with stabilisers – meaning money would be transferred to member states in trouble.

“As a final destination it would involve a political union with a central budget as its own fiscal capacity and a means of imposing budgetary and economic decisions on its members.”"

Back in October Germany's Finance Minister, Schaeuble came up with the idea of a currency commissioner that would be able to veto national budgets. It was wrong then, and it's wrong now - federalism does not mean this sort of centralisation. As I wrote last month:

"You cannot "depoliticise" the fundamental matter of national budgets, because you cannot pretend that budgets and economic issues are simply matters of technical wizardry, with expert options being implemented for desired outcomes - desired outcomes are political matters, and deserve a meaningful airing in a publically accountable body: the national parliament. While there is an argument for certain budgetary contraints on Eurozone Member States to ensure the functioning of the common currency - in exchange for solidarity between Member States, it should be stressed - at the end of the day Member States should be able to set their own budgets.

Rather than trying to come up with tighter and more rigid and better enforced rules for the Eurozone, we should be working to divorce banks from the sovereigns to make banking a European matter within the Eurozone, and creating a system where Member States can go bankrupt, without endangering the system and with some support for recovery after bankruptcy. A flexible and politically accountable system would work much better than Schaeuble's approach - there needs to be political accountability for national budgets at the national level, and at the European level for those elements of European solidarity."

This idea should be killed off, and killed off quickly.

The Nobel Peace Prize Debate

The news that the EU will be awarded the 2012 Nobel Peace Prize was quite a surprise, and it caught a continent off guard. Praise for the EU? The constant drip-drip of bad news and mini-crises bubbling up as the Great Recession rumbles on has made any major show of support for the idea of European unity, beyond crisis-fighting necessity - almost unthinkable. It was a controversial decision, and I've mixed feelings about it.

Ironically, I wrote a post two months ago arguing that pro-Europeans should move away from arguing for the EU based on its peace mission, and now it's the focus of continental debate. While I agree that the EU deserves the prize, I do have a few reservations about the timing and the manner of the award.


The EU deserves the Peace Prize

The EU has been amazingly successful as a peace project in Europe, ensuring the reconciliation between France and Germany, it has helped anchor European states in democracy and it has provided a structure of rules and constant negotiation that promotes and secures a culture of problem-solving that rests on diplomacy and even transnational democracy (if a flawed transnational democracy). As I argued in my post on retiring the pro-European peace argument, purely military alliances do not build such a culture and allies, such as Greece and Turkey, could even have their relations collapse and move towards serious conflict.

It's important to stress that peace - and particularly a sustainable, lasting peace - isn't simply the absence of war, but the presence of a working system and culture that brings countries together in a way that solving problems peacefully and cooperatively becomes not just more workable, but the norm. The EU provides a system of cooperation and negotiation that is constant, building a community of values and interests that helps bind Europe together and sustains that culture of peace between the Member States. Of course peace wouldn't collapse tomorrow if the EU disappeared, but without a sustainable system the norms underwriting peace would be eroded. Like the burning of financial regulation and the gradual disappearance of a culture of restraint within the financial sector that could lead to abuse and a hollowing out of the system, the peace in Europe requires constant maintenance.

The arguments against the EU deserving the prize seem weak to me. That the EU did not bring peace to the Western Balkans in the '90s is a low point in its history, but the EU didn't (and doesn't) have that kind of foreign policy and defence power if the Member States don't act. That's not to say that the EU would have done a fantastic job if it did have those powers (who can guess what might have happened?), but the EU's capabilities for promoting peace outside its borders are restricted to the carrot of enlargement, peacekeeping, and foreign aid - not dealing with hot conflicts. The soft power brought by the EU to the former Yugoslav states through the promise of enlargement - integration into the peace and economic system of the continent - has helped boost the movement toward the democratic and peaceful European mainstream in those countries.

And while I feel that there are issues with the timing, I don't think the EU deserves the award any less now for what it has already achieved. The current economic policies may be wrong, but the mission of creating a Europe where war is unthinkable has been largely achieved thanks in large part to the EU.


Problems with timing and intent

Though there's peace between the Member States and no suggestion of armed conflict, the social problems that have scared the lives of millions within the EU as a result of the economic crisis and misguided economic policy led by the European Council makes the award ring hollow. Though the EU deserves the prize for its work, the motive behind the award seems to lend the EU some political capital to help it solve the crisis. A Nobel prize awarded to boost peace efforts is by definition controversial and is vital and necessary work for the Nobel Committee. But here the questions for resolving the crisis are essentially questions of domestic policy, and I think it's a bit too far removed from the classical peace building work. It would have been preferable if the award was given in circumstances that better recalled the good work of the EU, rather than being delivered as a pointed reminder that we risk messing up our continent and the global economy.


Highlighting the EU's Shame

Increasingly, the intended message behind the prize seems to me to shame the EU: it has achieved a lot, and it could achieve more by way of solving its own crisis, but so far it is failing. Pro-Europeans should not see this simply as a boost to the credibility of the EU (as if credibility could be so easily boosted), but take seriously the challenge of conflict resolution. The current EU system is failing at resolving the conflict and tensions within it, and the solution applied to the crisis should not just be about finding the right technical remedy, but in fashioning a system that all Member States and citizens can buy into. This means a greater European democracy, baked up with substance - a project not to be left to elites, but dependant on citizens too.

Using the Nobel prize to help boost a political position that is largely domestic (as in the case of awarding Obama with the prize), devalues the Nobel Prize. Even though the peace aspect is less indirect in this case, it's still a bit of a stretch in the current climate. The EU deserves the Peace Prize and it needs a shot in the arm, but it's unfortunate that it was the Nobel Committee that felt it had to take it upon themselves to make an argument for the EU. We should be doing better than this.

Will Barroso set out his vision for the Eurozone?

Tomorrow Barroso will give his third State of the Union speech of the parliament. The last two have been focused on the legislative programme for the upcoming year, so they have been more of the traditional speech from the throne that are held in constitutional monarchies rather than the more fundamental state of the union speeches that the title implies. This year the expectation seems to be that Barroso will focus on the integration needed for economic union - what will be the balance between legislation for the upcoming year and integration rhetoric?

Commissarial Speech 2011

But what about the progress since his last speech? Barroso focused mainly on the economy and foreign affairs. He declared his support for the Financial Transaction Tax, where the Commission has published an impact assessment but there's little prospect of it being implemented. The Single Market Act is slowly being put into action and legislation in this area (e.g. on public procurement and professional qualifications) has been introduced and/or passed. Project bonds are now in a pilot stage. On foreign affairs, the EU is clearly not any more important globally than it was before.

So there's been some progress on the main goals set out and plenty of ongoing work to do.

The six-pack of legislation on rules for the Eurozone were also passed and the draft two-pack was introduced and is currently under debate in the Parliament.


Commissarial Speech 2012

The Commission is entering the last 2 years of its mandate, so the focus will start to shift to finishing its legislative priorities and plans (such as the two-pack, market regulation and the new general data protection laws) rather than introducing new draft legislation that the Commission might not have time to bring through the legislative process. That treaty change is on the political agenda (with Van Rompuy putting together some proposals), this is Barroso's (and the Commission's) chance to make a big political pitch for the type of EU he wants to see. It's also hard to see any legislative rabbits being pulled out of the hat at this point or many new investment or growth policies, particularly given Barroso's agreement with the general line on austerity and the crystallisation of Member State positions on the EU budget. So we should see a speech on the direction of the EU and European integration.That said, vision and ambition aren't the words that spring to mind when it comes to Barroso.

Apart from the economic crisis and discussion on European integration, the Union's justice and home affairs policy really needs attention. The area got scant attention last year and problems have built up, with the bust-up between the Council and the Parliament over Schengen (leading to the Parliament suspending talks on several important pieces of legislation) being the key event in the last 6 months. Will Barroso try to woo the Parliament back into working in this area, and can he present a coherent vision for the EU's security strategy? It's a delicate issue since he won't want to risk offending his audience by pushing Parliament too hard to give in to the Council and there is little Barroso can offer the Parliament here, but the lack of a political narrative and political leadership for justice and home affairs apart from a shopping list from the Member States is a major weakness.

The speech will be on at 9:00 CET on September 12th in the European Parliament.

Trichet's Political Union

Former ECB President Jean Claude Trichet has written a bit about the kind of political and economic union he'd like to see:

"[After considering the Fiscal Stability Treaty and moves towards banking union:]

But none of this is enough. Instead of imposing fines on countries that transgress rules and ignore recommendations, as the SGP was supposed to do, the European Commission, the European Council, and – this is essential – the European Parliament should decide directly on measures to be immediately implemented in the country concerned. Fiscal and certain other economic policies should be subject to activation of a eurozone “federation by exception.”

The idea that sharing a single currency also means accepting limitations on fiscal sovereignty is not new. A “federation by exception” merely draws the logical consequences from the ineffectiveness of the fines envisaged by the SGP, and is fully consistent with the concept of subsidiarity that has been applied since the SGP’s introduction: as long as national economic policy complies with the framework, there are no sanctions.

Perhaps the most important element of the “federation by exception” would be its strong democratic anchor. Its activation would be subject to a fully democratic decision-making process, with clear political accountability. More precisely, decisions to implement measures proposed by the Commission and already approved by the Council would require a majority vote by the European Parliament – that is, those representatives elected from the EU’s eurozone members.

In such exceptional circumstances, the parliament of the country concerned should have the opportunity to explain to the European Parliament why it could not implement the recommendations proposed, while the European Parliament could explain why the eurozone’s stability and prosperity are at stake. But the final word would belong to the European Parliament.

In the past, I have suggested establishing a eurozone finance ministry, which would be responsible for activating economic and fiscal federation when and where necessary, and for managing new crisis-management tools like the European Stability Mechanism. It would also be responsible for overseeing the banking union, and it would represent the eurozone in all international financial institutions and informal groupings.

But, most important, “federation by exception” would ultimately cease to be an exception. The finance minister would be a member of the EU’s future executive branch, together with the other ministers responsible for other federal departments."

This turns the idea of the democratic deficit on its head. The problem of the EU has been that it needs to be made more democratic and accountable to citizens, and that national electoral mandates have not provided that democratic legitimacy. There may be a need for a proper economic union to create a sustainable Eurozone, but if there needs to be some common policies, they should be, well, common policies rather than a selective intrusion into Member States. The kind of political union proposed by Trichet would bring a democratic deficit into Member States: those elected on a European mandate should make decisions on common European policy and not on national policy.

While economic union means that common policies are set, it is up to the Member States to decide for themselves on their economic policies. The aim of a common European economic policy is for the Eurozone to work as a currency area, not for the European institutions to set national policies in detail. So while by being part of the Eurozone Member States have to act in the common interest of the Euro so it isn't threatened or destabilised, it's up to the Member States to decide on their economic policies and how they will invest and pay down debt. Not only is Trichet's plan politically unacceptable, but it wouldn't work - if the national parliament is unable to meet the conditions of loans or of Eurozone membership, then it's because there isn't the political will within the Member State to take the necessary actions and drafting in another elected body to take those decisions won't be effective either, since it would lack democratic legitimacy and since the national administration is of course under the control of the national parliament and other state institions.

It takes a pretty strange concept of subsidiarity to propose the European Parliament standing in for the national parliament...

ECB lending to buy time for... what?

The European Central Bank's announcement that it would buy Eurozone government bonds is a massive boost to the Eurozone, but a lot remains to be done before we can say that the Eurozone is starting on its path out of the crisis. The banking union legislation will be a key part of the agenda over the next months (the Commission should publish a draft law on banking union next week), and it is vital in separating the link between national banks, which have grown as part of an EU-wide financial system, from national governments, many of whom are simply too small to support such large financial sectors.

However like most initiatives banking union focuses on preventing similar problems next time - in order for it to have an appreciable effect on today's crisis there would need to be a deal on old banking debt that has been taken on by national governments, in particular Spain and Ireland. (The Fiscal Stability Treaty, the six pack and the yet-to-be-passed two pack share this weakness too). Could this be agreed? Would there be joint liability for debt already generated and taken on by national governments (that the ECB pressured the protection of banks to ensure the stability of the system means that there was also a European interest in these national financial systems from early on in the crisis too)? It's a highly political area and the Irish government - and no doubt Spain too - are eager to reduce their debt as far as they can while avoiding austerity.

But it's not just in Ireland and Spain's banking case that the debt question is posed (though they raise the spectre that rigid application of public debt rules bear little relation to the ability to weather economic crises), since debt and economic growth is a European question. So what is the ECB buying time for: for an agreement on economic union? How far should economic union be extended? If debt needs to be shared to ease the burden and to provide breathing room for reforms and recovery in the most crisis-hit countries what kind of institutions do we need, and how do we make them accountable?

Merkel has signalled that she wants a convention by the end of the year to decide on the future of the EU, and apparently France and Germany are moving closer together on political union. Barroso has also called for a EU Treaty "renewal". There's very little detail on what is meant by different people about economic or fiscal union, so it's hard to get a debate going it. It's likely that the only debate we'll get is on the results of a convention - hardly a good way to build such a union or to build support for it. In any case Barroso is supposed to put forward some ideas in his State of the Union speech on September 12th. If he does put some ideas on the table, it could be one of the few opportunities for civil society to study the up-coming integration debate.

Excessive Deficit Regulation

The Excessive Deficit Regulation (PDF) builds on the six-pack legislation’s provisions on budgetary surveillance.

The Regulation

The Regulation would establish a common budgetary timeline (mid-term budgetary framework to be published by 15^th April, draft budget laws published by 15^th October, and budget laws should be adopted by 31^st December), and require the creation of national independent fiscal councils for monitoring the implementation of national fiscal rules for achieving budget balance.

For budget monitoring, the relevant information is (simplified list taken from Article 5(3)):

(a)    The targeted budget balance as a percentage of GDP;

(b)   The projections at unchanged policies for expenditure and revenue as a percentage of GDP;

(c)    Targeted expenditure and revenue as a percentage of GDP;

(d)   A detailed description of measures to be included in the budget to bridge the gap between the targets in (b) and (c);

(e)   The main assumptions about expected economic developments and important economic variables, based on independent macroeconomic growth forecast;

(f)     Any additional indications on how recommendations to the Member State will be met.

The Commission will give its opinion on the draft budgetary laws by 30^th November, and national parliaments can require a Commission presentation to them. There will also be an overall assessment for the Eurozone.

When a Member State is under the excessive deficit procedure it falls under closer budgetary scrutiny, with regular reports to the Commission on the execution of the budget on the general government and sub-sector levels. Under Article 7(6), the Commission can require a Member State to carry out and report on a comprehensive independent audit of its accounts and provide additional information on its progress on the excessive deficit. The Regulation would increase the Commission’s power in monitoring Member States’ budgets and involvement in budgets where there is an excessive deficit procedure in force.

European Parliament Report.

For the Economic and Monetary Affairs Committee, Elisa Ferreira (S&D) drafted the report for the Parliament’s response at first reading. The report was endorsed in Committee by 18 to 12, with 14 abstentions, and in plenary by 501 to 138, with 36 abstentions. The report was endorsed by an EPP-S&D-ALDE-Greens/EFA coalition.

The report submits 81 amendments that will be the Parliament’s starting negotiating point with the Member States in the Council. The main changes are:

- Greater reference to employment and social partners to be added to the recitals;

- It would add (non-binding) calls for a Financial Transaction Tax and a Common Consolidated Corporate Tax Base to the recitals;

- Specifies that the Regulation does not affect wage formation or collective agreements;

- Would define “particularly serious not compliance” as a deviation of 1% GDP in one year or an average of 0.5% GDP each year for two years from the budgetary objective if there are no exceptional circumstances;

- Gives some more flexibility with the deadlines;

- “Expected economic developments” will include an estimation of the assumed macroeconomic multiplier effects (so stimulus packages can be taken into account);

- Specifies that the Commission’s power to specify content of draft budgetary plans is through delegated acts, which brings it under closer control and scrutiny by the Parliament and Council;

- The European Parliament can also require that the Commission present its budgetary plans to it and the relevant EP Committee, as well as the Eurogroup, will discuss the Commission’s opinion on national budgetary plans and the budgetary situation in the Eurozone. The Commission may update its opinions in the light of these discussions;

- Overall assessments of the Eurozone shall also include stress tests that provide “an indication of the risks to public finance sustainability in the event of adverse financial or budgetary developments.”

- The requirement of Member states to report debt issuance to the Commission and the Eurogroup will be included;

- The Commission will be required to present a report on a roadmap towards Eurozone Stability bonds and present a proposal for a Eurozone sustainable growth instrument aiming at mobilising approx. 1% GDP per year over 10 years, including an increase in EIB capital and project bonds, to be invested in European infrastructure, science and technology;

- Eurozone Member States may agree an annual coordinated public debt issuance framework (this is for a future proposal, however);

- A European Redemption Fund shall be established based on joint liability and strict conditionality for 25 years (after which it will be wound up), covering debt over 60% GDP of non-assistance programme Eurozone Member States on a roll-over period of 5 years. There will also be a fiscal consolidation strategy and a structural reform agenda. The ERF’s day-to-day management will be under the Commission following a regulation by the EP and Council;

- Under the excessive deficit procedure, the relevant Member State will present its national plan, including areas of European Added Value, such as EIB credit lines;

- The Commission shall present a report, and possibly a proposal, on a European Debt Authority to the Parliament and Council that would be responsible for managing and coordinating all issues relating to the annual debt issuance plan of the Member States.

Thoughts

The report is clearly very ambitious, particularly inserting the creation of a European Redemption Fund, likely as a way of aiding Italy and Spain. The Parliament is keen to introduce a greater scope of variables to the process and to highlight the importance of social partners, respect for wages and collective agreements, and European solidarity through national plans indicating EIB and other economic help. It’s also clear that the Parliament is using this opportunity to push its ideas on to the agenda and to overcome being overshadowed by the European Council summitry that’s dominated the past 2-3 years of crisis. The Parliament has also tried to introduce more democratic and parliamentary controls over the Commission’s power, especially in ensuring the oversight of its delegated powers by the Parliament and Council. By reserving a right to demand Commission reports and the right of debate, the Parliament tried to ensure that all these plans are open to political debate and discussion.

Still, the need for the Parliament to cram requirements for further reports and debates on further aspects of Eurozone reform highlights how one-dimensional the current “fiscal union” is. The more radical elements are sure to be thrown out or heavily watered down – I don’t expect to see the redemption fund survive negotiations with the Council – but there are some grounded ideas for improving the content of reporting, planning, and of improving democratic oversight.

Making the pro-European argument

Listening to The EU Debate on the BBC last week, I was struck again by how often the pro-European argument re-treads old arguments, and I have to admit I roll my eyes every time the peace argument is brought up.

This is not to say that there's anything wrong in the peace argument itself (or to take away from the debate on the BBC, which had a very limited time to establish the argument). The EU does contribute to peace in Europe because it promotes continuous cooperation between the Member States. NATO has contributed massively to peace in Europe, but it's not as deep as the EU or as good at generating connections and cooperation between its Member States - despite Greece and Turkey being members since 1952, the fifty years since joining have not been the most cordial (indeed the deterioration of relations between the two countries after joining was a case study in how multilateral military alliances can destabilise relations between countries at my university). Likewise the Council of Europe and its Court of Human Rights have not prevent war between its members, with the Russia-Georgia war being a recent example.

However the European Union is much, much more than just a peace project and requires a more complex argument to justify it. By launching the pro-European argument with the "peace in Europe" rationale, by the time NATO has been addressed there is less time to set out a deeper context or basis to the EU to build on when the debate moves on to the economy or justice and home affairs. Not only does the opening argument on peace sound distant from today's concerns (it's inevitably admitted that war wouldn't suddenly occur if the Euro collapsed tomorrow, etc), but it also means that there is little underlying rationale or idea that holds together the cooperation covered by the EU. Not a good way to start off the pro-European argument.


Explaining takes practise.

A common thread to discussions in pro-European circles seems to be that the pro-European case would find more supporters if it was explained. This irritates me for two reasons: it's a boring discussion that doesn't solve or further anything, and pro-Europeans are terrible at explaining things. Probably because they constantly talk about explaining things rather than actually explaining them.

Or, more seriously, there is usually less need to defend and think about defending the status quo than if you want to change something. It reminds me of the position of unionists in Northern Ireland or the unionist argument in Scotland, where the status quo came or is coming under pressure (in greatly differing circumstances), and those who supported the union lagged behind in creating an articulate narrative in its favour. While supporters of the British union have adapted, pro-Europeans still lag behind - with the pro-European position more precarious if it also wants to argue for the future changes that are a key part of the pro-European position in the Eurocrisis.

The structure of the EU and the reliance of the pro-European movement on European leaders and European summit meetings meant that it struggles to create a convincing narrative and has lost time. It also means that there's been a shrinking support base - a generation of believers in the European ideal as a way of maintaining peace have passed, and the European statesmen and women who pushed the project along in the past are less likely to be generated in the future by a generation for whom the need for peace is less visceral and the narrative for the European Union less clear.


Participation needs to be at the core of pro-Europeanism.

Protesilaos Stavrou has pointed out that there are two types of pro-European: the intergovernmental and the federalist. If the focus on European statesmen and stateswomen and all the related summitry has left us with a withered pro-European base and an out-of-date narrative, then I don't see much future for that strand of pro-Europeanism - how can it bring the EU closer to citizens and build a convincing narrative? The summitry that has dominated the Eurocrisis has not only failed to deliver a solution, damaging the credibility of the intergovernmental model, but is also corrosive to the political confidence and support necessary for the outcomes of summits to be delivered on. The intergovernmentalist pro-European seems to assume that necessity will overcome objections in the end and that the EU will find a way to muddle through. But integration has progressed further than in the past with an outdated narrative in the present: there isn't the same reserve of goodwill to run on, and it is hardly desirable to run a game of chicken between economy necessity (or any other necessity) and European voters and hope that we'll muddle through each time.

The second element of the pro-European argument is generally that cooperation between Member States means that we can achieve more together than we could apart. This needs to be developed further with the idea of participation and a more democratic EU: that if cooperating means that Member States can do more and achieve more than on their own, then a democratic EU would empower citizens to a degree that they wouldn't be without the EU.

This also means that the pro-European side needs to drop the idea that everyone benefits equally and nobody looses out from this process: that the internal market, justice and home affairs cooperation, etc, make sense, but they have downsides that need to be debated and avoided or mitigated. This is why there is social elements to the internal market - ensuring that there are certain common standards on employment (such as maternity) mean that the social protection that is part of our common values is not undermined. However we need to build a substantive European public sphere so that we can debate these issues better and so we can use the European Parliament better.

It is a complicated argument to make and needs to take on the failings of the EU as it stands as much as it builds a robust narrative to defend the idea of European Union versus ad hoc argeements or free riding on the rest of the EU while withdrawing. (And of course it would need to be more flesh out than I've written here). But there must be a coherent narrative to support the cooperation that pro-Europeans are advocating, and one that underlines the alternative argument of Euroscepticism in the public mind. If the EU is to survive, it needs to be responsive to citizens, so participation needs to be at the heart of the pro-European argument.

The EU Debate on the BBC

Another recommendation today, with a debate on BBC Radio Four called The EU Debate.

The debate covers the in/out debate for the UK in the EU from the politics and economic perspective. It would have been nice to have a programme/debate on each aspect of the relationship (politcs, ecomoics, justice and security, and foreign affairs) to get a bit more into the subject, but it's a good programme.

Since it's BBC Radio, it can be listened to outside of the UK, unlike TV programmes on BBC iPlayer.

Amartya Sen: Democracy, Austerity and Social Justice in Europe

I came across this interesting article by Amartya Sen via the CELS: "What happened to Europe?" It's a very broad article, but covers the connection between politics (and democracy) and austerity, social justice and European integration. An extract:

"That austerity is a counterproductive economic policy in a situation of economic recession can be seen, rightly, as a “Keynesian critique.” Keynes did argue—and persuasively—that to cut public expenditure when an economy has unused productive capacity as well as unemployment owing to a deficiency of effective demand would tend to have the effect of slowing down the economy further and increasing—rather than decreasing—unemployment. Keynes certainly deserves much credit for making that rather basic point clear even to policymakers, irrespective of their politics, and he also provided what I would call a sketch of a theory of explaining how all this can be nicely captured within a general understanding of economic interdependences between different activities (emphasizing in particular the fact that someone’s expenditure is another person’s income). I am certainly supportive of this Keynesian argument, and also of Paul Krugman’s efforts in cogently developing and propagating this important perspective, and in questioning the policy of massive austerity in Europe. 

But I would also argue that the unsuitability of the policy of austerity is only partly due to Keynesian reasons. Where we have to go well beyond Keynes is in asking what public expenditure is for—other than for just strengthening effective demand, no matter what its content. As it happens, European resistance to savage cuts in public services and to indiscriminate austerity is not based only, or primarily, on Keynesian reasoning. The resistance is based also on a constructive point about the importance of public services—a perspective that is of great economic as well as political interest in Europe.

THERE IS A CENTRAL ISSUE of social justice involved here—that of reducing rather than enhancing injustice. The public services are valued for what they actually provide to people, especially to vulnerable people, and this is something for which Europe had fought. Savage cuts in these services undermine what had emerged as a social commitment in Europe at the end of World War II, which led to the birth of the welfare state and the national health services in a period of rapid social change in the continent, setting a great example of public responsibility from which the rest of the world—from East Asia to Latin America—would learn.

In order to understand the inadequacy of Keynes as a guide to solving the European economic crisis, we have to ask: what kind of an economist was Keynes in terms of his vision of a good society? Keynes did say—famously, and accurately enough—that paying laborers to dig holes and then to fill them up can be a very good thing, because of its impact on increasing effective demand to combat a recession or a depression. This is fine as far as it goes, but Keynes had extremely little to say on what social commitments a state should have—what public expenditure should be for, other than for just strengthening market demand through state intervention."

 And:

"[...]

If we add to this economic argument the long-term concern in Europe about some form of social justice and the more immediate political worry about the undermining of the European sense of solidarity, we can see what a disaster the recent European financial policies have been. The case for resisting the savage cuts in public services can hardly be ignored. This is not because the commitment to social justice must always be paramount, but surely it must be a serious concern that cannot simply be discarded by bankers and financial leaders. There is, of course, always a need for rational scrutiny and examination of what a country can afford and what it cannot—taking into account all the relevant factors, including the changing age distribution of the population. But this is not the same question as checking what a country can afford with inefficient economic and financial management, with fuzzy thinking on exchange rates and market demands and economic competitiveness."

The first two pages are a bit of European integration history, and the substantive argument really gets going from page 3 onwards.

A much needed referendum debate

Sigmund Gabriel of the German opposition SPD (PES) has called for Eurobonds as a necessary part of the solution to the Eurozone crisis, and for the referendum required to permit German participation. Although Gabriel is just one of the Troika that heads the SPD (Steinbrueck and Steinmeier are the other two), the - increasingly frequent - judgments from the German Constitutional Court in Karlsruhe have made it clear that further integration may require a referendum. So there has been a bit of a debate lately on when and how a referendum should be held over Europe - notably coming from the Finance Minister.

The German Constitution can be changed by the German Parliament (which is why it could be argued that the independence of the Bundesbank from political interference and pressure is slightly mythical), but Karlsruhe has essentially stated in its Lisbon Treaty Judgment that at some point a referendum would be needed. So despite the outcry from the governing parties that the SPD are being irresponsible in backing Eurobonds:

"Merkel spokesman Georg Streiter said the a German referendum "lies a very long way in the future"..."

Any fiscal union will need explicit consent from the people of the Eurozone, and there has to be an open political debate about the alternatives with competing proposals. The step-by-step approach that has been taken so far (in Europe generally, but in Germany and by Merkel especially) has a corrosive effect on the confidence in national and European political leadership and ability, and in the idea that there is a solution. What we have now is a strategy that breeds cynicism, to the extent that it's hard to know if there is a strategy at all and we have to engage with a new type of Kremlinology centred entirely on the contents of Merkel's head! Without even a debate on the future of fiscal union, it's hard to see any political deal produced at the end of this process being accepted after all the suspicion and bickering that will likely continue for another 2 years, if not longer.

So the debate is necessary for any plan to have a hope of working. Speaking in favour of Eurobonds is not the same as making an open commitment to Eurobonds to be introduced as soon as possible (the SPD are still quite close to the government on conditionality, but with more solidarity); it needs to be part of a deal that covers conditions and democratic oversight. It cannot be a technical fix introduced at breaking point, but the product of an open political process. Utopian to hope for given all the summitry, but necessary if we're to have any hope of creating a workable compromise.

Note: Juergen Habermas' (et al) article in the Frankfurter Allgemeine Zeitung (here in German) has been linked to the SPD's move, and Habermas will be involved in the SPD's manifesto for the next German elections. Other interesting articles on the SPD's website on Eurobonds and meeting their Spanish counterparts here and here.

UK renegotiation and the European Social Contract: Free-rider Status?

Today Open Europe argues, on their blog and in The Telegraph, that the Norwegian model is a bad model for the UK to pursue, and that the British government should try to negotiate better terms within the EU rather than leaving to join the looser EEA. In arguing this, Open Europe take the argument of those who support either the status quo or further integration - that EEA membership or a Swiss model relationship with the EU would lead to a loss of political influence but require high levels of acceptance of rules decided in Brussels - and uses it to support the argument that the UK can get a special relationship within the EU. The UK, the argument goes, is such an important market, and Germany and other northern countries want the UK to remain inside the EU as part of a market-liberal alliance, that the UK can win a place as a member of the internal market, but opt-out of pretty much everything else.

This misses the point of what the internal market - and the EU - actually means to the rest of the Member States.

Back in the winter, when David Cameron wielded the British veto on treaty change, there was a political storm over whether Cameron negotiated well or not, but also a wide acceptance that what the UK asked for was reasonable. I argued that it wasn't, given that it was reversing integration in the internal market and that it would run counter to even the interests of the more traditionally UK-aligned Member States. In the UK the EU is portrayed as a free trading agreement that has run out of control, but the internal market itself is more than that, and the fact is that the rest of the EU needs to exist to politically support the internal market.

The internal market goes beyond a free trade agreement and a customs union because it's not just about getting rid of tariffs at the borders, but about creating an economic and legal space where businesses and people can move and work and provide goods and services without obstacles being thrown up by different regulatory systems. This means that there needs to be some harmonisation and some mutual recognition of rules and standards.

Which brings us to the "European Social Contract". Yes, despite all the fallout and arguments of the Eurozone crisis, I would argue that there is a basic social contract at the heart of the EU, which is also important to ensuring that the internal market has the political legitimacy to exist. The internal market covers a massive economic space and its regulation has social, economic and environmental consequences. Given the post-war social contract in Europe - essentially that the state has a place in ensuring the social welfare of the people both as a moral duty (it's seen as part of "what the government does", and in order to provide a bulwark against extremism and social instability - and a crude deregulation of markets within a European space would threaten national societies and their identities. The social and environmental legislation and the elements of redistribution that exist in the EU are an attempt to preserve this social settlement while unlocking the economic potential of such a large continental market (we'll ignore the history of integration being seen as a way of ensuring peace).

While the internal/single/common market has been elevated to an article of faith in the UK, really it relies on the social, regional developmental, redistribution-orientated and environmental faces for its political legitimacy. Would the other Member States not only be willing to give the UK full access to the internal market and let it leave the areas that sustain its political legitimacy, but also let it retain its political influence in votes in Brussels? It's a hard bargain to drive to say that you will have full benefits in the areas you like, but opt out of all other obligations. I don't think other Member States would be willing to open up their markets fully to a country that will not accept its part of the European Social Contract. It's up to Britain if it wants to reduce workers rights and social and environmental protection, but why should the other Member States provide the UK with unfettered access to the internal market if it does?

This is not asking for second or third tier membership, this is asking for Free-Rider Status.

The argument that the UK is too important to the more market liberal Member States to let Britain leave - as has been argued elsewhere too - also forgets to touch on the UK's political weight and influence as a Free-Rider Nation. The UK - and probably its MEPs - would not have a say in the areas that the UK opts out of. What use is the UK as an ally here if it doesn't have a vote? This is another aspect of the UK's negotiating position that is just not recognised in the British debate: the more the UK opts out or talks about opting out, the less valuable and reliable it is as an ally for the other Member States. After all, why should you put your political capital on the line for a country that's half out the door and in little position to help you in return?

There's no such thing as a free lunch, and in the EU there can be no such thing as a Free-Rider Nation.


UPDATE: The Centre for European Reform explores the Norwegian and Swiss options in more detail.

Eurozone politics should not be a game of football

It was a tense summit last week, but it had a clear result: 1-0 to Hollande. Or was that Merkel? Maybe Monti?

After last week's summit the German papers have turned to rage - how could Merkel give in to Hollande on banking union?! - to pride - aha! of course Merkel tricked Hollande into a banking union with supervision from the ECB! This is the most depressing part of European summitry: the debates are so childish and miss the point entirely.

The deal made last week (PDF) is the same as the deal that stands this week. The same deals are known, there have been no further explanations. But the point-scoring narrative rumbles on for days afterwards, instead of actually asking if the proposed system will work, or if something else needs to be done.

The Eurozone leaders are slowly, ever so slowly, inching their way towards closer economic and political union in order to deal with the crisis. Clearly the weight of the financial sector of the Eurozone cannot be contained in the periphery, which does not have the fiscal firepower to essentially deal with the European banking crisis. Loans provided on the basis of austerity conditions funnelled through state coffers to the banking system - and funded for by taxpayers through national austerity programmes - will not work, never mind the horrific social costs. A banking union is one necessary part of economic union, in order to divorce the European banking system from a patchwork of sovereigns too individually small to prevent its collapse. This will be the easy part; the second part is much, much harder.

Closer economic and political union in the Eurozone is needed to ensure that there is enough solidarity and support between Member States so that states can recover from economic and state finance crises without threatening the Eurozone system, and also ensuring both the responsibility of the Member States and securing the social cohesion of national societies (and therefore the Eurozone as whole politically). This requires a delicate balance between the democratic rights of the Member States to determine their own economic and social policies, and on the democratic rights of the Member States not to be punished for the democratic decisions of other Member States and their fall out.

Merkel and the German government are coming from the point of view that discipline and austerity are necessary, otherwise solidarity will be taken advantage of, with the problem being that the sort of austerity and discipline being demanded is asking the impossible. As brilliantly explored over on the Social Europe Journal, Greece has undertaken more "adjustments" in a year than Germany did during its entire programme of reforms in economically good times. The focus on the Fiscal Stability Treaty is also a narrow-minded approach which overlooks the actual course of the crisis in many countries: countries like Ireland and Spain had surpluses, while Germany and France broke the rules, and this has not translated into a deeper crisis in France and Germany than in Spain in Ireland. Holding ever more rigidly to the rules will not solve anything.

On the other hand, there cannot be a blank cheque of solidarity, it needs to be built through a system where there is true give-and-take. Everyone will make concessions, and Member States will have to undertake to keep government debt in general low as well as federalising certain policy areas, in return for fiscal support and stimulus in times of trouble.

France, and other countries, have trouble with the European F-word, but there needs to be more democratic accountability at the European level, and the system needs to be reliable, transparent and agreed upon for it to gain public trust. Hollande seems to be moving towards thinking of the political side of the union, though it could also force an answer to the West Lothian question in the European Parliament.

The step-by-step approach of Merkel is a failure. We cannot continue with a drip-drip trickle of treaties, summits and agreements that edge us towards a solution without ever getting us there - a method corrosive to public trust. It's time to be clear about the options and to discuss how far we are willing to go in the Eurozone. In the end the public needs to be brought along in all Member States, so we all need to confront the concessions we need to make.

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.

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.

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.

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:

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.

Citizens will have to drag Europe closer to them

There's an interesting article in the New York Times (hat-tip Grahnlaw), "E.U. Elites keep the Power from the People", reporting on criticism from Habermas and others on the EU's democratic deficit:

"“The process of European integration, which has always taken place over the heads of the population, has now reached a dead end,” Mr. Habermas said at a forum hosted by the European Council on Foreign Relations. “It cannot go any further without switching from its usual administrative mode to one of greater public involvement.”

The political elites “are burying their heads in the sand,” he said, adding, “They are doggedly persisting with their elitist project and the disenfranchisement of the European population.”

Those who agree with Mr. Habermas often cite the behavior of José Manuel Barroso, president of the European Commission, the Union’s executive, and Herman Van Rompuy, president of the European Council, which represents the 27 member states.

During these past months, both have failed to explain to a wider public what is happening to Europe and the euro. When they give interviews, they tend to address an elitist audience. Neither reaches out to citizens. “I doubt if they ever thought of doing town-hall meetings,” said Pawel Swieboda, director of DemosEuropa, an independent research organization in Warsaw.

“They don’t bother to do such meetings because they don’t have to stand for election,” added Reinhard Bütikofer, a German and leader of the Greens in the European Parliament."

I agree. However, the solution seems to be changing the Treaties, and this doesn't really address the problem. While Treaty change can help (for example, giving the Parliament the sole respobsibility for electing the Commission without Council input, and severing the national backgrounds of Commissioners from national nominations), the biggest and most urgent challenge has nothing to do with institutional tinkering.

The EU is already formally democratic. The Parliament is directly elected and has almost equal power with the Council, the weakness being mainly in the area of foreign affairs. This is real power, with US Vice President Joe Biden making the trip to implore the Parliament to pass the SWIFT Agreement between the EU and US last year. The Parliament elects the Commission (just like the government is in many national parliamentary systems), which is nominated by the Council. The Council consists of the elected national governments, and the European Council - the Member States' heads of government - direct general policy. So in all the main legislative institutions, offices are either directly or indirectly elected.

But despite this, the main focus on EU politics is the summitry that takes place every few months or to combat crises - an increasingly common event. Summits are the face of the remote decision-making that's going on. Member States gather together, not all with an equal say in practice, and hammer out compromises based on haggling over national interests, instead of working out what would be the best solution for the EU or Eurozone as a whole. If this sidelines the Commission, then it definitely sidelines the Parliament: after all, how can they reject emergency agreements made at a European Council summit? These summits could even be sidelining the ECB, which has been one of the most influential players in the crisis so far.

If the EU is formally democratic, then the problem is that it isn't functionally democratic. The addage that in democracies the electorate get the government they deserve doesn't quite apply as there hasn't been much political competition yet at the European level. That might change at the next election, with the PES considering running a primary to select a candidate for the Commission Presidency. Political competition is what's necessary to bring the EU closer to citizens. The EU can't be sold or airbrushed into people's lives: people need to be engaged on European issues, and we have to talk about these issues from the perspective of arguing for EU or Eurozone policies.

We're in the middle of a massive crisis, but when it comes to the solutions, we are talking about national solutions to European problems. When Irish politicans talk about Eurobonds, they're thinking of the next five years and Ireland's interest rates, not how to make the Eurozone work - without even thinking about what fiscal union means, and how it should be run, how can it be properly debated or sold to an electorate? These conversations with ourselves mean that we're talking past each other on a European stage, rather than properly discussing what are our best collective options. Which is why working on giving substance to the Europarties is much more important than institutional tinkering. Citizens need to be engaged with the issues - using citizens' assemblies would be a good way of involving people and informing them on the options ahead.

Oddly, institutional tinkering is the sexy and glamorous side to ideas to tackle the democratic deficit. Hard graft within political parties and outside them in civil society to make them more responsive to European issues - and to make them fulfil their political function as a way of enabling citizens to influence policy - is a much more substantial task, even if it doesn't yet the attention of another constitutional treaty.

The Others: from navigating the Rhine to navigating the Skies

It's been a while since I blogged about my RIO Trip of the European institutions and organisations, so it's probably time for an update.


Central Commission for Navigation on the Rhine.

This organisation has the claim to fame of being the oldest international organisation in the world, set up in the 19th Century after the Napoleonic Wars to promote the free navigation of the Rhine to encourage economic growth. There are 5 member states (France, Belgium, Germany, the Netherlands and Switzerland - though the US was a member at one point), and the organisation can adopt regulations for the Rhine on the basis of unanimity of its members.

Sound familar? There is also a kind of court system, with designated national courts to deal with disputes, and a CCNR Appeal Court. Though the court system is at arms length from the core organisation (it is, after all, a judicial branch), in many ways it, and the laws it upholds, are the most striking things about the CCNR. Old as it is, it's an impressive (and surprisingly early) example of international co-operation giving individuals enforceable rights.



[Image from Wikipedia].


Today the CCNR resides in an old German Imperial Palace in Strasbourg (apparently the Kaiser hated the place but his wife was rather more fond of it), and it's now called Le Palais du Rhin. The CCNR is still focused on economic freedom of the Rhine, but there are also issues of employment law and environmental protection. However, the EU has impacted on the CCNR - the EU works in the area of environmental protection and some areas of worker's rights, so the CCNR has to work differently to make its presence felt. Now it sees its role as that of an expert body, giving advice to its much younger sister Commission on the Danube, and other authorities, including the EU, and has worked on giving advice and expertise on shaping EU regulation in this area.

The grand atmosphere of the Palais gave the organisation a strange air: it struck me as an organisation that was very proud of its history, and resigned to a Europe of highly competitive international organisations.


Eurocontrol.

Eurocontrol brust into the limelight recently during the Ash Cloud Crisis last year, when they experienced the very European position of being blamed for something which they didn't do: in this case for the closure of airports. Eurocontrol aims at the creation of a "Single European Sky", but generally deals with co-ordination between airspaces (there are still national airspace controls) and the collection of route charges.

Eurocontrol, like the CCNR, is not part of the EU system but heavily affected by it. I was struck by the enthusiasm while I was there and the focus of the Eurocontrol on competing with other organisations to provide more air traffic services to the EU and its member states. It continues to grow in membership - in fact, Latvia has become its 39th member today (PDF).

Back from RIO

It's been pretty quiet on the blog recently because life has been very busy lately. Apart from exams, papers, and general work, I've just been on a RIO Trip. Unfortuneately it isn't as glamourous as it sounds, as RIO stands for "Recht der internationale organisaties", which is Dutch for "Law of the international institutions".

The trip consisted of visiting a lot of European organisations in Strasbourg, Luxembourg and Brussels, and entailed an exhausting amount of presentations and travelling, and, as was pointed out, an unknown number of bars. The EU and the Council of Europe naturally featured on the list, but so did other less well known organisations and institutions within the EU and outside of the EU umbrella. The lasting impression is of a Europe that has embraced an extrodinary depth of co-operation and integration, the scale of which rarely strikes you until you've seen the many different forms of co-operation - and I'm sure we only saw a quick overview. The commitment of the people involved in these institutions is also impressive: again and again, we met people who were genuinely enthusiastic about their subject area, whether it was the prevention of torture or the regulation and safety of the skies.

The positions of the other, non-EU, organisations was interesting as well. In a continent full of international co-operation, the EU looms large as the Europe, and the other organisations are adjusting their roles in the face of the EU's success. From conflicted self-assertion and resignation (Council of Europe), to a vision of providing expert advice (Commission on Navigation of the Rhine), to that of enthusiastic service provider (EuroControl).

Notable exceptions from the trip were the Council and the EP. The Council was dropped because of the European Council summit which occured while we were in Brussels (so ironically I was close by but didn't know what exactly had happened until I got back home). The EP was dropped because, apparently, they're just bad at handling visitors and left a bad immpression on the last RIO trip - which is a shame, because the EP is, for me, the institution that communicates best online.

So to get back into the swing of blogging, I think I will cover some of the institutions and organisations and my impressions of them.