Category Archives: EU Reform

Corrupted Politicians, Beware! EU is Watching You!

The Commission has proposed a set of measures to address the harm that corruption causes to European societies. The Commission is setting up a new mechanism, the EU Anti-Corruption Report, to monitor and assess Member States’ efforts against corruption and encourage more political engagement. Supported by an expert group and a network of research correspondents, and the necessary EU budget, the Report will be managed by the Commission and published every two years, starting in 2013. It will identify trends and weaknesses that need to be addressed, as well as stimulate peer learning and exchange of best practices.

How effective will the report be? It’s a very good sign that the EU will have a more focused approach towards diagnosing serious corruption in Member states. But it’s far from certain that ample treatment will follow the diagnosis. If we consider the experience with the reports under the Cooperation and Verification Mechanism for Bulgaria and Romania, it appears that the Commission reports stir a lot of emotions and produce fewer practical results.

Any effort to independently monitor corruption levels in any Member state should be commended. The Commission should also consider benefiting from the existing monitoring mechanisms set up by Transparency International and OECD.

 

 

The Old New Idea for a Political Union – Misunderstood?

The Greek financial crisis now threatens the whole eurozone. It appears that without substantial debt restructuring Greece is likely to default, and would have to leave the eurozone. This could lead, however, to substantial collateral damage and unintended effects for the whole European banking and financial system. The other option is a very large fiscal transfer from the eurozone core. This second option will lead donor Member States to demand substantial political guarantees for fiscal discipline in Greece and other possible recipients (i.e. Ireland and Portugal).

It looks like the crisis has brought back the idea for a true European political union on the table. The president of the ECB, Jean-Claude Trichet, himself has called for the establishment of a European financial minister.

Now, the idea is not really new. Back in the 1950s there was such a project, called the European Political Community (EPC) that aimed to politically unite the Member States in the European Economic Community (read more about it in the excellent paper by Berthold Rittberger). The main institutional innovation in the EPC was the central role of the bicameral parliamentary body in adopting the budget and the legislation. The EPC project failed, but some of its ideas were later implemented by including the European Parliament in the legislative and budgetary procedures.

Going back to Mr. Trichet’s ideas, we see something completely different. In his framework, the Council would act on the basis of a proposal by the Commission, in liaison with the ECB, to take some measures directly affecting the economy of the Member State that has not implemented its fiscal stability program. There is no role for the European Parliament whatsoever. Apparently Mr. Trichet believes that the very agreement on a stability program is substantial legitimation for a direct involvement in the economic and fiscal policies of a Member State by the Council.

This is quite doubtful. It’s very difficult to imagine how the same people that violently oppose to austerity measures taken by their democratically elected governments will somehow accept direct interference by an institution of the European Union. It’s equally difficult to imagine that the European Parliament will approve such an institutional framework. I can certainly understand the reasonable motives for proposing such a second stage of austerity enforcement, but I’m afraid that such a procedure will decisively worsen the democratic deficit of the European Union.

If and when the governments of the Member States decide that a more profound Treaty revision is needed for establishing tighter fiscal coordination, they will have to consult their national parliaments and the European Parliament. Such consultations are in fact inevitable, since TEU requires the summoning of a Convention to adopt the draft text of the revision (art. 48, para. 2-5 TEU).

 

 

Proposal for Reforming EU Trade Preferences

The Commission has put forward an important proposal for the reformation of the so-called Generalised System of Preferences (GSP) which grants specific tariff preferences to developing countries in the form of reduced or zero tariff rates or quotas.

Key elements of the proposal include:

1. Concentrating GSP preferences on fewer countries. A number of countries would no longer be eligible to benefit, including:

  • Countries which have achieved a high or upper middle income per capita, according to the internationally accepted World Bank classification (such as Kuwait, Russia, Saudi Arabia and Qatar).
  • Countries that have preferential access to the EU which is at least as good as under GSP – for example, under a Free Trade Agreement or a special autonomous trade regime.
  • A number of overseas countries and territories which have an alternative market access arrangement for developed markets.

2. Reinforcing the incentives for the respect of core human and labour rights, environmental and good governance standards through trade by facilitating access to the GSP+ scheme which grants additional, mostly duty-free preference to vulnerable countries.

3. Strengthen the effectiveness of the trade concessions for Least Developed Countries (LDCs) through the “Everything but Arms” (EBA) scheme.

4. Increasing predictability, transparency and stability.

What Do We Really Want from the EU?

European citizens should think more about their demands when talking about the EU. Here’s why.

These are not the best of times for the European Union. There’s a financial crisis; an immigration crisis; a crisis of trust, and who knows what else. In a nutshell, the EU is in trouble.

What is more difficult to comprehend is the malignancy and the “I-told-you-so” attitude of so many politicians, commentators and European citizens. The poignancy of the negative feelings is really remarkable. That is why I would like to do something unusual for this blog and address these skeptics. My objective is to provide a merciless, subjective and heavily normative critique of the complacency of those that seem to prefer a European future without a European Union.

In order to do that, I need to make an important observation. Homo Sapiens has not evolved substantially during the last 60 years. That being said, the claims that a new war on the European continent is impossible seem strange. It was not the tanks and airplanes that destroyed Europe during World War II, it was the people in them. What is more, our physical and genetic ancestors have waged war on one another for at least two millennia on this continent. In fact, the only longer peaceful episode in recent history has been the period of European integration. It’s true that NATO and the dynamic of nuclear deterrence also played a part. But it was the cooperation of European elites within the European Community that cemented this security pact.

Nowadays many believe that wars are part of the history, but not of the future. Others think that wars may be a useful instrument of foreign policy. What unites them is the lack of any wartime experience. This virus of complacency and ignorance is widespread. It has caught up with politicians, journalists, and all kinds of experts. The McDonalds rule is their flag, although it has already been broken. This virus makes them think that states are well equipped to solve emerging problems using the classic instruments of intergovernmental cooperation. The problem with their narratives is that this type of cooperation has recently failed spectacularly – with the UN Climate Change Conference failing to agree on new rules for climate change mitigation, WTO failing to agree on the completion of the Doha round, and the G-20 failing to agree on anything except for the summit menu. These are not just incidents; these are symptoms of the limitations of the classic forms of international cooperation.

Someone might argue that if the EU were so successful, it wouldn’t have experienced its recent crisis. That is true. The EU is not perfect, and we are now bearing the fruits of the lax rules of the Economic and Monetary Union. But it is much better than any other form of cooperation especially given the small economies of many Member States. This issue of economic efficiency is usually not discussed by euroskeptics. The truth is that without the European Union economic life in Europe would definitely slow down, and businesses know that. This is the problem of some anti-EU parties: their constituencies will actually suffer from any possible withdrawal from the Union. That is why they prefer to grumble about the EU without taking a meaningful step towards resolution of their grievances. Referendums should be held in each and every Member State that feels the need to take a different path to prosperity. The United Kingdom should be particularly encouraged to conduct a referendum on its EU membership. The European Union is not a club of convenience; its success depends on the high motivation of its members.

The European Union is not at a crossroads. It is a well-functioning and unique mechanism for political integration. It’s up to its users – the European citizens, to use it properly. It will deliver results only if we command it to do so. That is why from now on I would like to hear more demands, and less chaotic criticism when discussing the EU.

The Pact for the Euro: a Summary

The heads of state and government of the еurozone Member States have adopted a new competitiveness pact, called “A Pact for the Euro”. The pact comes as a form of guarantee for Germany in order to increase the funds of the European Stability Mechanism (ESM). You can read more about my concerns about the legality of such a pact here. An early assessment of the Pact for the Euro is available here.

The guiding rules of the Pact for the Euro:

  • It will be complementary to the existing instruments of economic governance in the EU;
  • It will concentrate on actions where the competence lies with the Member States. In the chosen policy areas common objectives will be agreed upon at the Heads of State or Government level;
  • Each year, concrete national commitments will be undertaken by each Head of State or Government;
  • The implementation of commitments and progress towards the common policy objectives will be monitored politically by the Heads of State or Government of the Euro area and participating countries on a yearly basis.

The goals of the Pact for the Euro:

  • Fostering competitiveness;
  • Fostering employment;
  • Contributing further to the sustainability of public finances;
  • Reinforcing financial stability.

The main policy instruments:

  • Monitoring and adjusting unit labour costs (ULC);
  • Removing unjustified restrictions on professional services and the retail sector;
  • Improving education systems and promote R&D, innovation and infrastructure;
  • Removing red tape and improving the regulatory framework (e.g. bankruptcy laws, commercial code);
  • Labour market reforms to promote “flexicurity”;
  • Tax reforms, such as lowering taxes on labour;
  • Aligning the pension system to the national demographic situation;
  • Putting in place national legislation for banking resolution;
  • Developing a common corporate tax base.

 

 

The New Comitology Regulation is Published

Regulation (EU) No 182/2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers has been published in the Official Journal. It repeals Decision 1999/468/EC (the old ‘Comitology Decision’). There are now two comitology procedures – the advisory procedure and the examination procedure. The advisory procedure is the same as in the old Comitology Decision. The examination procedure replaces the management and regulatory procedures. The examination committee can approve or reject the implementing measure with qualified majority (the same voting rules as in the Council apply). In case no decision is taken, depending on the subject matter of the implementing measure, the Commission can either adopt the measure or submit it to an appeal committee, where new, final voting takes place.

All the legal and institutional issues on delegated lawmaking and the new comitology regime are reviewed in my new paper for the EUSA conference.

 

 

Looking for the Philosopher’s Stone of Economic Governance Coordination

France and Germany proposed a new way forward for the coordination of economic governance in the European Union. The proposal may be ambitious in scope, but is minimal on detail – the leaked document contains one (1) page only. So how to interpret this?

First of all I am really surprised by the mentoring attitude of Merkel and Sarkozy at the European Council meeting. Wall Street Journal quotes Yves Leterme, the Belgian prime minister:

“There were 18, 19 countries who spoke up to make known their regret on the way it was presented and also on the content. It was truly a surreal summit.”

This misstep will obviously diminish the chance for quick success of the negotiations. Apart from the tactics, however, I am much more interested in the emerging legal obstacles to any compromise. The problem is that too much EU law stands in the way of the proposal in its present form.

The scope of the proposed measures is huge – raising retirement ages across the euro zone, abolishing indexation of wages to inflation, harmonizing corporate and other taxes and instituting a “debt brake” that limits the ability of governments to borrow to fund their spending. Nevertheless, France and Germany seem to believe that this can be done without a proper reform of the Treaties, in some sort of Schengen-like legal framework.

First it’s worth investigating whether the proposals can be introduced as an enhanced cooperation (art. 326 – art. 334 TFEU). Such cooperation must not undermine the internal market or economic, social and territorial cohesion. It must not constitute a barrier to or discrimination in trade between Member States or distort competition between them (art. 326 TFEU). These legal restrictions must be interpreted carefully, and a program to raise the competitiveness of certain Member States may well violate them. An enhanced cooperation also involves a proposal by the Commission and the consent of the European Parliament. It’s approved by the Council with a unanimous vote (art. 329, para. 2 TFEU).

But another way forward may be a Schengen-like legal framework, initially external to EU law. In this case, however, I believe that it must also comply with the criteria set for enhanced cooperation – i.e. it should not undermine the internal market or economic, social and territorial cohesion, and it should not distort competition between Member States. These criteria will be difficult to meet provided that the very purpose of the measures is to improve the competitiveness of the participating Member States. Additionally, it looks like France and Germany do rely on the Commission and the European Systemic Risk Board to perform some functions in this new framework. I can’t imagine how this can be done without someone (for example, the UK), raising the question of the funding of such initiatives by the EU budget. The European Parliament could also have some objections to this.

The most likely (and the slowest) option is Treaty revision. It is also the most legitimate way forward (and maybe the only legal one). True, it would lead to a lot of bargaining and time loss, but it would also bring stability and legal security to this new framework.

Having said this, it’s obvious that some measures must be taken. It’s just that proposing measures without thinking about their legal ramifications is not a good sign for their success. After all, we are talking about unprecedented levels of economic governance coordination. Trying to circumvent Treaty reform may not work simply due to the scale of the proposals.

 

 

Intuitu Personæ: Who Should Lead the ECB?

There’s quite a lot of talk recently about who should replace Jean-Claude Trichet as president of the European Central Bank. Sylvester Eijffinger and Edin Mujagic from Tilburg University say that a firm ECB president, unwilling to yield to political pressure, is needed. Jean Quatremer provides, as usual, a very detailed picture of the behind-the-curtain negotiations surrounding the nomination of the future president of the ECB.

Two things are important here. First, we should avoid at all cost a North-South polarization surrounding this issue. True, the ECB president is elected by qualified majority, but any trust in the eurozone that is still available will be lost if Member States start fighting over this post. Second, whoever is elected should be able to guarantee strong leadership. We certainly do not need an ECB president that divides instead of unifying the eurozone.

At a time of great peril there’s no room for experimenting. I do hope that all Member States, and France and Germany in particular, will not try to over-politicize this nomination. Otherwise consequences may become overwhelming, and history will apportion blame accordingly.

 

 

The Tedious Necessity of Treaty Revisions

The spirit of reform is haunting Europe once again. There’s talk of political union, scrapping EU institutions, and even leaving the European Union altogether. I can only sympathize with this spirit of reform and creative destruction. But one thing worries me – the lack of apprehension of the legal foundation of the EU.

The European Union is not a tribal clan. It is a supranational organization based on law, and encompassing an intricate network of rules that makes the whole thing possible. Having ideas about reform is cool, but reform necessitates the revision of the Treaties by the prescribed procedures.

That is why a political union cannot happen on a short notice. It will have to go the long way through the ordinary revision procedure, since it will provide new powers to the EU (art. 48 TEU). This is also the case with scrapping the European Economic and Social Committee, for example (it changes the institutional framework of the EU). As for the potential quitting of the EU by the United Kingdom, a more detailed legal analysis is needed in order to calculate all the costs and provisional time-frames for such a move.

Whatever the spirit of reform brings to the table, we need to execute reform legally. Backdoors are not available (see the position of Otmar Issing against the adoption of a political union through the backdoor of a monetary union).

 

 

Commission’s Consultation on Bank Failures – Too Little, Too Late?

The European Commission has launched a consultation on technical details underpinning a European crisis management framework for the financial sector. The main measures proposed:

  • Preparatory and preventative measures such as a requirement for recovery and resolution plans and powers for authorities to require banks to make changes to their structure or business organisation where such changes are necessary to ensure that the institution can be resolved;
  • Powers for supervisors to take early action to remedy problems before they get out of hand such as the power to change the managers;
  • Resolution tools which empower authorities to take the necessary action, where bank failure cannot be avoided, to manage that failure in an orderly way;
  • A framework for cooperation between national authorities.

The two main principles proposed by the Commission are:

  • Effective arrangements which ensure that authorities coordinate and cooperate as fully as possible in order to minimise any harmful effects of a cross-border bank failure, and
  • Fair burden sharing by means of financing mechanisms which avoid use of taxpayer funds.

Now, the problem is that we already have a situation that may well get out of hand. Fortune has quoted Scott Minerd, chief investment officer at Guggenheim Partners, who thinks the entire banking system of Europe could be on the brink of disaster (I recommend reading the whole article). If this is true, the Commission’s initiative will not have the time to translate into meaningful EU policy. More, the proposal is not sufficient to solve the problems of the EU banking sector, which is heavily exposed to sovereign debt.

Scott Minerd says that it’s now up to Germany to take leadership in organizing a fiscal union and creating a common EU bond. He rightly points out that this means a true federalization of the European Union, since fiscal policy will be, to some extent, managed on EU level.

In other words the impending banking crisis in the European Union could result in a true federalization – the dream of the founding fathers of the EU. But it sounds simpler than it actually is. Many things can go wrong, and the markets are not exactly ready to accommodate the Hamletian dilemmas of EU Member State governments. The recent approach of Germany and France to coordinate positions and try to sell them as unconditional proposals is not sustainable. EU governments should discuss options multilaterally, taking into account varying positions and nuances. We need true European consensus on fiscal governance, not empty declarations on the centrality of the Economic and Monetary Union.