Tag Archives: France

Of Eurozone Mice and Eurozone Men

This week was tumultuous for the eurozone, in a string of equally tumultuous weeks that preceded it. The Greek Prime Minister proposed a referendum for the new bailout package for Greece, was promptly scolded by his fellow eurozone leaders at the G20 summit, and had to arrange his exodus from the scene. Meanwhile Italy panicked and started redesigning its own austerity programme.

What all this reveals is a new incursion into political entrepreneurship, mainly by the leaders of France and Germany, to somehow solve this crisis. This is also a sign of failure of the European governance mechanism that simply does not withstand the political pressure.

The leaders of the main EU institutions play only supporting roles in this spectacle. The governments of the Member States, aided by the IMF, are once again trying to pull themselves by their own hair.

The crisis of European political leadership notwithstanding, we are experiencing the incapability of the institutional mechanism of the European Union to deliver in this difficult moment. Important decisions are taken outside the multilateral decision-making track. This brings more instability to the system and delegitimizes the decision taken. One of the reasons is the blatant disregard for European Union law.

During the dinner in Cannes Mrs. Merkel and Mr. Sarkozy reportedly asked Mr. Papandreou whether Greece wants to stay in the eurozone or not. The problem of this question is that it has not been discussed with all 26 Member states other than Greece, and to my knowledge it would take all these 26 Member states AND Greece in order to decide on its exit from the eurozone. In other words the political entrepreneurship has neglected the very structure and substance of EU law, hiding behind the veil of urgency. Urgently taken decisions often are bad decisions, though. The European Union is much more than its currency and no economic crisis of any proportion should be used as a tool to destroy what has already been built.

While we, Europeans, remain surprisingly short-sighted, our American allies have already noticed and evaluated the huge importance of our weakness. Perhaps it is time to start thinking strategically and stop shooting in the dark.

 

 

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.

Why Reforming Schengen is Not That Easy

France and Italy have signaled their desire to push for a reform of the Schengen framework for border control. One of the most important proposals is the procedural right to temporarily re-establish border controls between two countries. The European Commission is scheduled to present its own plans for amending the Schengen rules next week (4 May).

The Schengen border security legal framework is now part of the EU acquis. Any revision of the Schengen framework goes through a codecision procedure, where the European Parliament is a co-legislator with the Council (see art. 77, para. 2 TFEU). More, the Commission is the only body that can propose legislation on border checks, asylum and immigration (see a contrario art. 76 TFEU). Whatever France and Italy propose is of no relevance; the Member States do not have a right of initiative on these matters.

On all these accounts I am quite skeptical that Italy and France will succeed to push an amendment of the Schengen framework that seriously undermines the principles of the current regime. Any significant policy overhaul must be accompanied by a careful impact assessment and discussions not only among governments of Member States, but also with relevant stakeholders. It will take more than a bilateral summit to do that.

The (Un)Importance of the Cooperation and Verification Mechanism

The new set of reports under the Cooperation and Verification Mechanism (CVM) for Bulgaria and Romania were published by the Commission. The mechanism is used by the Commission to monitor the progress of both countries in the fields of judicial reform, corruption and organised crime. But does the mechanism matter?

It’s difficult to say. The CVM was an instrument used to extend conditionality beyond the accession date for Bulgaria and Romania. For three years after the accession the EU could impose safeguard clauses, including a specific safeguard clause in the area of justice and home affairs (art. 36 of the Accession Treaty). However, this period has expired. It the strict sense of the word CVM is no longer a conditionality instrument. Eli Gateva has written a very good paper on this, explaining that the absence of accession rewards combined with toothless explicit threats for sanctioning non-compliance produce very weak negative incentive structure.

On the other hand both the Bulgarian and Romanian governments pay attention to the recommendations in the reports and at least try to act on them. One reason for this can be the difficulty of acceding to the Schengen area. Both France and Germany have linked the two issues, although they are not legally dependent. So one may argue that the accession to the Schengen area is now a new conditionality tool, used to push reforms of the judiciary in Bulgaria and Romania.

There is also another interpretation – that “old” Member States have given up hope of achieving effective structural reforms of the judiciary in Bulgaria and Romania, and are trying to mitigate the damage by denying access to the Schengen area. This strategy will fail. Neglecting the structural deficits of law enforcement and the judiciary in Bulgaria and Romania can have wide-ranging implications for the whole European Union. It is not possible to “isolate” both countries in some sort of a triage. Their weaknesses impact negatively the overall security of the EU, and of the separate Member States.

That is why the CVM is still useful – at least as an instrument for diagnosis.

 

 

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 Gates to Schengen Remain Locked for Bulgaria and Romania

France and Germany have officially announced that they will block the accession of Bulgaria and Romania to the Schengen area, Euractiv reports. The main deficiencies in both countries that they outline are the absence of a satisfactory juridical and administrative environment in the fields of security and justice, persisting corruption at different levels and worrying levels of organised crime.

This letter does not come as a surprise to this blogger. I have time and again noted that both Bulgaria and Romania are facing significant challenges in the reform of the judiciary and the fight against corruption and organized crime. Two questions, however, linger on.

The first question is whether Bulgaria and Romania were fit to become Member States in 2007. The European Commission believed so, and so did France and Germany at the time. However, this leads to the logical conclusion that both countries in fact experienced a deterioration of the rule of law since accession.

The second question is whether Bulgaria and Romania can actually, at any point in the future, join the Schengen area. This is not an absurd question, since if separate Member States reaffirm their right of individual assessment of the quality of the judicial systems of candidates, it may turn out that both Bulgaria and Romania are assessed against unachievable standards that surpass the present level of rule of law in the Schengen area. Again, this is a logically derived possibility.

France and Germany should understand that answering both questions will have its consequences for the level of solidarity and cohesion in the European Union.