Tag Archives: European Council

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.

 

 

What Limited Treaty Amendment?

The European Council has apparently decided that some limited amendments of the EU Treaties are necessary in order to establish a permanent crisis management mechanism for the eurozone.  Herman Van Rompuy and the European Commission have been mandated with preparing proposals for such a crisis mechanism – which would provide emergency lending in the event of a sovereign-debt crisis. The proposal for the restriction of voting rights of Member States violating fiscal stability requirements seems to have been shelved for the moment.

An important feature of the mandate is the question whether a simplified revision procedure can be used (art. 48, para. 6 TFEU).  The simplified procedure may be used for the amendment of provisions in part three of TFEU (Union Policies and Internal Actions). The European Council acts by unanimity after consulting the European Parliament and the Commission, and the European Central Bank in the case of institutional changes in the monetary area.

The main requirement for the simplified revision procedure, however, is that it should not increase the competences conferred on the European Union in the Treaties. This test is very important and it remains to be seen how any meaningful crisis management mechanism could pass it.

A Good Guide to Institutional Innovations in the Treaty of Lisbon

The Center for European Policy Studies (CEPS), Egmont (Belgium’s Royal Institute of International Affairs) and the European Policy Centre (EPC) have come together to publish a second study of the institutional innovations included of the Treaty of Lisbon. The authors have identified ten issues that they explore in length. A couple of general conclusions are made:

  • The institutional system of the European Union has become more complex;
  • The European Parliament and the European Council have clearly been reinforced by the Treaty of Lisbon;
  • The Lisbon Treaty reinforces and accelerates an evolution towards increased joint management.

I recommend this publication to anyone interested in the institutional dynamics of the European Union.

Achievements and Omissions in the European Council Conclusions on the EU Economy

I’ll make an attempt to list the achievements and the omissions in the European Council conclusions from the meeting on the 17 June 2010 on the EU economy.

Achievements:

The Europe 2020 Strategy – it is supposed to promote a series of reforms aimed at competitiveness and employment, placing research and development at the centre of economic initiatives for the next decade. The aim is to raise to 75% the employment rate for women and men aged 20-64, raising combined public and private investment levels in research and development to 3% of GDP, reducing greenhouse gas emissions by 20%, reducing school drop-out rates to less than 10%, and aiming to lift at least 20 million people out of the risk of poverty and exclusion.

Economic governance – explicit objective for strengthening both the preventive and corrective arms of the Stability and Growth Pact; introducing the concept of dynamic debt; a scoreboard to better assess competitiveness developments and imbalances and allowing for an early detection of unsustainable or dangerous trends; publication of results of ongoing stress tests by banking supervisor; introduction of systems of levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk.

Iceland – start of accession negotiations.

Estonia – adoption of the euro on 1 January 2011.

Iran – new sanctions based on UN Security Council Resolution 1929.

Omissions – the European Council failed to produce any specific measures on dealing with growth imbalances and actual, serious fiscal policy coordination. In other words the European Council delayed taking painful decisions on the future of economic governance in the European Union, while setting strategic objectives that may or may not produce effective results.

The Missing Link in the Eurozone Governance Debate

The President of the European Council Herman Van Rompuy proposed a “crisis cabinet”. He said that “there is not much hierarchy or organic links between the main players and the main institutions”. The idea is to include the European Comission President Jose Manuel Barroso, the head of the European Central Bank Jean-Claude Trichet and Mr Van Rompuy himself in this “crisis cabinet”.

At the same time the President of the European Commission called Germany’s plans on improving economic governance in the eurozone as “naïve”. He believes that any treaty reform is not feasible in the moment.

To me it is apparent that the debate is triangular – among the Commission, the ECB, and the European Council, leaving one player out. The European Parliament, that is.

In a way this is understandable. Any further integration of economic governance will encroach on state sovereignty. That is why it is essential to have sound support in the Member States for any further reform.

Then again, the weak conditionality of the Stability and Growth pact, as negotiated by the Member States, failed to perform. Any coordination mechanism short of Treaty reform will probably go the same way. We can see this in the conceptual disputes between Germany and France during the years and even today.

True, the EP did have a debate on economic governance coordination last week. But did it really influence the debate in the EU? Did it reach the European citizens? I am not so sure.

The dark scenario is political divergence rather then convergence. This may well be happening, given some unilateral steps made by Germany. But it should not surprise us – governments do calculate their own tactical interest, betting against the other participants in the currency union. In fact, history is full of such examples where currency unions dissolute due to political disagreement.

The European leaders seem to believe that they can “fix” the eurozone on an intergovernmental level with the support of the ECB, preferably without introducing Treaty reform. It would be great, but it is not possible.

That is why it would be much, much better if the European Parliament had a stronger voice in the debate. It is in the moment the only institution that can provide a forum for open deliberation of diverging political ideas for reform.

On a bitterer note – Member States may well circumvent the public discussion, but they will not fool the markets.

There Will Be Measures on Greece

We know that some measures will be taken to support Greece. The decision was taken during a meeting of the eurogroup on Monday. Officially we don’t know what the measures will be. Unofficially we know that most likely they will come in the form of coordinated bilateral loans. The final decision will probably be taken by the European Council.

The question now is – is this really enough?

Hedegaard: No Climate Deal before 2012

Climate action commissioner Connie Hedegaard has said that a legally binding deal on climate change would not be achievable before the ‘Cop 17′ – the Conference of Parties to the UN Framework Convention on Climate Change, which is to take place in December 2011 in South Africa.

According to Mrs. Hedegaard he EU would have to take a “step-wise approach”, including different paths for influencing the international debate. The European Council’s meeting on 25-26 March 2010 will address primarily the climate change dossier.