Very Good Proposal on Schengen

The Commission has put forward a proposal for improving the institutional framework of the Schengen area. First, the Commission proposes a strengthening of the Schengen evaluation mechanism. Announced and unannounced monitoring visits to a given Member State by Commission-led teams with experts from other Member States and Frontex will verify the application of the Schengen rules. Second, the Commission tackles the problem of unilateral reintroduction of borders. Such a decision for the reintroduction of internal border controls for foreseeable events (such as an important sporting event or a major political meeting) would be taken at the European level on the basis of a proposal by the European Commission backed by a ‘qualified majority’ of Member States’ experts. If a Member State fails to adequately protect a part of the EU’s external border, support measures including technical and financial support from the Commission, from Member States, from FRONTEX or other agencies like Europol or the European Asylum Support Office (EASO), can be taken.

The proposed measures are a big step forward for the European border security policy. However, a few Member States have already expressed skepticism, citing the national sovereignty as the main reason. They seem to have forgotten the very poor response of France and Italy to the wave of sea-borne migrants due to the Arab Spring revolutions in North Africa.

It will be very interesting to observe the debate on the Commission proposals, since border security is one of the factors that will define the viability of the European project.

 

 

Dear Germany, You Are Deciding the Future of Europe

Dear Germany,

The last two decades were very good for you. You were able to unify your divided territory and your people. You had your fair deal of growth and expansion of trade. You began to “normalize”, as experts say.

Today you have to solve a great problem. It is up to you to decide whether the eurozone project lives or dies. I will not go into the details of the problem and the possible solutions. In any case you know very well what is at stake and what the options really are.

But why should you choose to save the euro? Well, two reasons spring to mind. First, a breakup of the eurozone will be very messy and will likely hurt your banks, pension funds and ultimately – your own citizens. The breakup will negate some of the important benefits of the internal European market and will cause widespread economic troubles around the whole world.

Second, killing the euro will go against your own obligations. When you founded the eurozone you also agreed that any amendment of the rules of the EMU will go through an amendment of the Treaties. That means that countries such as France and Belgium must explicitly agree to the eurozone breakup, and I sincerely doubt that they would. So in case you want to print Deutsche Marks again, you will have to infringe the Treaties in a very blatant way.

If the internal political pressure is really high you might probably risk and do it. But going against the founding principles of the European Union will have a very high price for you. One of the reasons for the unification back in 1990 was that you were securely integrated in the European Community. Yes, you are very different now and yes, you are rightly demanding a stronger voice in the world affairs. But still – there are ambiguous feelings in Europe about a strong and expansionistic German economy, especially if combined with a rapprochement with Russia. You need to think carefully about those considerations.

Whatever you decide to do, I would strongly advise talking sincerely with your own people. Cheap propaganda about the lazy Greeks may sell the newspapers, but we’re not talking about entertainment here. Your choices will define the future of all European citizens, and that means Germans as well. The European Union will never be the same after the breakup of the eurozone, and you will not enjoy the position that you have now.

Please think carefully before making your decision. The world will not end with the euro, but it will be an uglier place.

Best regards,

Vihar Georgiev

 

 

Dissecting the New Franco-German Proposal for the Eurozone

The German chancellor Merkel and the French president Sarkozy met yesterday and produced this document outlining their new proposal for the reform of the eurozone economic governance. The main points are:

  • Regular meetings of the eurozone heads of state and government twice a year;
  • President of the eurozone coinciding with the president of the European Council;
  • Reinforcing the powers of the eurogroup of finance ministers (whatever that means);
  • All Member States of the euro area to incorporate a balanced budget fiscal rule into their national legislation by the summer of 2012;
  • All Member States of the euro area should confirm without delay their resolve to swiftly implement the European recommendations for fiscal consolidation and structural reforms;
  • Finalizing the negotiation on the Commission’s proposal on “a common consolidated corporate tax base” before the end of 2012;
  • Macro-economic conditionality of the Cohesion fund should be extended to the structural funds;
  • Joint Franco-German proposal on a Financial Transaction Tax by the end of September 2011.

So how to interpret this proposal? I will divide my analysis in two parts: 1. Efficiency to solve the urgent problems of the eurozone and 2. Long-term institutional considerations.

1. Efficiency to solve the urgent problems of the eurozone

This proposal will not solve the urgent problems of the eurozone. It is far from what is necessary to calm the markets and will not help neither the ECB, nor Italy and Spain. While Merkel and Sarkozy did touch upon the creation of a eurozone bond as a distant possibility, they did not make a positive step in this direction. This happens while many experts claim that only two options remain open – the creation of a eurozone bond or the breakup of the eurozone. I firmly believe that a eurozone breakup will be a huge blow to the whole world economy, and some research supports this view. That is why any further dodging of this issue will only add to the damage to the eurozone economy.

2. Long-term institutional considerations

Looking carefully at the Franco-German proposal, there is nothing really new that is being added to the Pact for the Euro. The common consolidated corporate tax base and the financial transaction tax (Tobin tax) are old ideas, and they are being drafted by the Commission. The “eurozone economic government” is nothing more than a high-level political meeting with unclear powers, but probably within the framework of the Euro Plus Pact. The “president” of the eurozone probably adds some weight to the position of the president of the European Council, but again his/her powers are not clearly defined and would probably only deal with coordination.

What is more troubling is the intrinsic logic of these proposals. They stay within the logic of intergovernmentalism, leaving all the important decisions to an intergovernmental body. This is a recipe for failure. It’s infuriating that after sixty years of supranational regulation we resort to an inefficient mechanism that remains prone to the joint-decision trap. We are curing the problem with more of the same, and this will lead to deepening of the problems. If we want to keep the eurozone intact we must give an independent body – the European Commission or another entity, the power to sanction Member States for their infringement of the budgetary discipline “golden rule”. Any other solution will not work precisely the way the current mechanism for ensuring budgetary stability in the eurozone does not work.

This intergovernmentalist trend must be stopped. Nobody believes that the Member States are able to control each other. If we want the integration process to continue, we need to take into account its inherent logic. Otherwise we will only breed hybrids that will live shortly and leave a mess behind.

Commission Proposes Increase of EU Funds Co-Financing for Six Countires

The European Commission has proposed to increase the co-financing rates for the EU funds for six EU countries that have been affected by the crisis.

Under the proposal, six countries would be asked to contribute less to projects that they currently co-finance with the European Union. The supplementary EU co financing is designated for Greece, Ireland, Portugal, Romania, Latvia and Hungary.

The measure does not represent new or additional funding but it allows an earlier reimbursement of funds already committed under EU cohesion policy, rural development and fisheries. The EU contribution would be increased to a maximum of 95% if requested by a Member State concerned. This should be accompanied by a prioritisation of projects focusing on growth and employment, such as retraining workers, setting up business clusters or investing in transport infrastructure. In this way level of execution can be increased, absorption augmented and extra money injected into the economy faster.

It concerns Member States that have been most affected by the crisis and have received financial support under a programme from the Balance of Payments mechanism for countries not in the Euro area (Romania, Latvia and Hungary) or from the European Financial Stabilisation Mechanism for countries in the Euro area (Greece, Ireland and Portugal). Bulgaria is not included in this scheme.

 

 

The Ghost of Hatred is Roaming in Europe

Yesterday a terrible crime was committed in Norway, leaving more than 90 people dead. A lone terrorist was able firs to explode a bomb in the centre of Oslo and then to shoot at least 80 people, many of whom were teenagers. We know very little about his motivation, but it appears that he held far-right, and anti-Muslim views. So let’s say it bluntly: the ghost of racial and religious hatred is roaming in Europe. We have to stop it.

I have watched with indignation the rise of far-right parties in the EU – from Netherlands to France and from Bulgaria to Italy. Everywhere across Europe the narrative of cheap nationalism and populism, the language of hatred and discrimination has become fashionable. Even mainstream politicians have flirted with it. This has to stop.

Europe has suffered too often from its stereotypes of hatred. After all, we nearly exterminated a whole ethnos just 70 years ago. I refuse to look the other way when the same old disease is surfacing. And I cannot overlook the role of media in this. Yesterday, while it was still unclear who was responsible for the events in Oslo, an English newspaper put this headline on its first page, claiming that the bombing was orchestrated by Al Qaeda. This was happening while various counterterrorism experts on Twitter were explaining that it was quite unlikely that Al Qaeda was involved. This was not an innocent mistake. We live in a time when many people in the media business do enjoy flirting with far-right agendas, because they know that hatred sells. Mr. Murdoch’s publications are not the only ones involved. We have to stop this.

It is quite obvious that the European countries do have a problem with the integration of immigrants. A lot can be done here. First, we need to address border security. Second, we need to foster integration of immigrants, without resorting to defeatist language, while taking into account the security concerns of our citizens. Third, we need to redesign development programs for developing countries. Fourth, we need to help designing programs for adaptation to climate change in developing countries. Fifth, we need to persecute crimes motivated by religious hatred and crime.

This agenda is much more important than any other agenda of the European Union. It needs leadership and determination. The alternative is grim. The ghost of hatred is still a ghost. We have to stop it.

UPDATE: Please look at the faces of the victims from the Utoya shooting.

 

The Second Greek Bailout: the Details

The leaders of the eurozone have approved the second bailout of Greece that is supposed to finally overcome the debt crisis in this country. The total official financing will amount to an estimated 109 billion euro. The European Financial Stability Facility (EFSF) will be used, but the maturity of the loans will be extended from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years. Lending rates will be around 3,5%, close to the costs of borrowing for the EFSF. The maturities of existing loans from the first Greek bailout will be extended. The private sector will contribute with up to 37 billion euro. Financial institutions will be offered a set of optional forms of contribution, including the buy-back of Greek debt, the extension of bond maturities and the rollover of existing debts. Greek banks will be recapitalized “if needed”.

The EFSF and the European Stability Mechanism (ESM) will be allowed to:

  • act on the basis of a precautionary programme;
  • finance recapitalisation of financial institutions through loans to governments including in non programme countries ;
  • intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional financial market circumstances and risks to financial stability.

The EFSF lending rates and maturities for Greece will also be applied for Portugal and Ireland.

So will the new bailout be effective? It’s hard to say. The economic commentators are somewhat sceptical. Felix Salmon notes that this deal is not enough on its own to bring Greece into solvency. He believes that this is not a one-off event and that the same instruments will have to be used for Portugal and/or Ireland.

It’s clear that the deal will alleviate fears for a financial meltdown in the eurozone. However, the deal does not efficiently address the growth problem for Greece (and by extension for Portugal, Ireland, Spain, etc.). The fundamental problem of the eurozone persists. Until we manage macroeconomic imbalances and structural impediments to growth, we will not be able to overcome the reasons for the current debt crisis.

 

 

2011 Reports for Bulgaria and Romania under the Cooperation and Verification Mechanism

The European Commission has published its fifth progress reports for Bulgaria and Romania under the Cooperation and Verification Mechanism (CVM) for 2011. The reports monitor the progress of the two Member States on progress with judicial reform, the fight against corruption and, concerning Bulgaria, the fight against organized crime.

The report on Bulgaria notes that Bulgaria has strengthened the Supreme Judicial Council and improved rules for the appointment, professional training, appraisals and promotions of judges. Several organised crime and corruption cases have reached verdicts in court. At the same time, an increased number of indictments in cases related to organised crime and fraud with EU funds have been achieved. The report notes that the leadership of the Bulgarian judiciary has yet to show a real commitment to thorough judicial reform as slow progress is not just the result of shortcomings in judicial practice and in the Penal Code. Again and again the Commission points out that judicial appointments still lack the necessary level of transparency and credibility. The report also notes that there is a lack of consistent disciplinary practice in the judiciary. The Commission sees weaknesses in the collection of evidence, the protection of witnesses as well as in investigative strategies, comprehensive financial investigations and the securing of assets. The Commission recommends that coordination within the prosecution and between the prosecution and the police should be improved. The most important recommendation of the Commission is to establish proposals for a reform of the Supreme Judicial Council, the Supreme Cassation Prosecution Office and the Prosecution in general regarding structures, legal attributions, composition, appointments and internal organization.

The report on Romania points to the significant steps Romania took since the last annual report of July 2010. Romania improved judicial efficiency, re-established the legal basis of the National Integrity Agency, continued preparations for the implementation of the four new codes, launched preparations for a functional review of the judicial system and carried out an impact analysis of its anti-corruption policy. At the same time, the report also notes that consistency and results in a number of areas remain a challenge and that progress in the fight against corruption still needs to be pursued. The report concludes that Romania needs to take urgent action to accelerate high-level corruption trials and to prevent their prescription due to expiry of statute-barred periods. The fight against corruption should remain a top priority, with support from Parliament, and urgent measures should be taken to improve the recovery of proceeds of crime, the pursuit of money laundering and the protection against conflict of interest in the management of public funds.