Tag Archives: Germany

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.

 

 

To Amend or Not to Amend? That is the Question

Today EU leaders will discuss a very important proposal put forward by France and Germany. It’s all about fiscal supervision and bail-outs, and the question is whether an amendment of the Treaties is necessary or not. Germany insists that a credible system of fiscal monitoring needs a credible sanctioning mechanism in order to keep EU Member States’ spending in check. To do that, Germany proposes the introduction of new texts in the Treaties. In exchange Germany would support a permanent bail-out mechanism. But it turns out that many are opposed to this proposal.

A number of media (EUobserver, Euractiv, FT’s brusselsblog) report that a number of Member states are very critical of the proposal. Viviane Reding has called the plans “irresponsible” and has been immediately reprimanded by France’s State Secretary in charge of European affairs, Pierre Lellouche. But that’s another story.

The important debate here is not whether an amendment is achievable in the medium term (it will probably be put to referendum in Ireland and possibly the UK and Denmark). The conceptual shift in the coordination of economic governance is where interests of Member States diverge.

Germany wants to impose strict fiscal discipline on all eurozone members, including the possibility of removing a Member State’s voting rights. But many argue that such budget austerity may not be the solution to the problem. George Soros himself has compared the proposals to the 1930s, where some countries became overly focused on balancing budgets during a depression. Other go further and note that it is Greece, in fact, which is bailing out Germany – in the form of an annual trade deficit that has averaged 5 billion euros, stimulating German jobs but destroying them in Greece. That is why many economists advocate for measures to stimulate demand in trade surplus countries – Germany, Netherlands, Denmark, etc.

Axel Weber, president of the German national bank, disagrees. He says that the proposal of raising wages to support domestic demand and reduce competitiveness neglects that wages are not a political control variable. Moreover, according to him simulation studies show that the effects would be confined almost entirely to the home economy in the form of changes in employment.

So who’s got it right? I’m not sure, and I am (thankfully) not an economist. But the German position will not be easy to defend unless it addresses the concerns about German policies that stimulate the aggregation of a trade surplus.

On Turkey and the Criteria for Accession

In recent days both Turkish and European politicians have spoken in favor of the Turkish accession to the European Union. Egemen Bağış, Turkey’s chief EU negotiator, sought to unblock Ankara’s accession bid by calling on European Union countries to call referenda on the country’s EU membership. Germany’s ex-foreign minister Joschka Fischer has predicted that Austrian, French and German opposition to Turkey joining the European Union will melt away with time.

In both cases the main argument is the strength of the Turkish economy and the demographic profile of the population – Turkey’s median population age is just 28 compared to 42 in the Union and its economy grew by around 11 percent in the first half of this year compared to the EU’s 1-2 percent.

But this will not suffice. The criteria for accession are now legally binding (art. 49 TFEU), and they include the so-called “political criteria” that are especially hard to meet. The “political criteria” include stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities.

Turkey must strive to cover these criteria in the first place. No level of economic development can substitute for the lack of democracy or respect of human rights. The Turkish narrative must be centered on the promotion of democratic values, and only after that – on economic development. Otherwise Turkey will only position itself as a valuable trading partner and an immigration source, but not as a potential Member State.

German Constitutional Court Avoids Direct Collision

The German Constitutional Court (GCC) in Karlsruhe is well known for its particular posture on questions relating to the European Union law. Now it has made a step sideways, saying that it has only limited jurisdiction in cases of ultra vires decisions of the EU institutions.

The GCC says that acts of EU institutions and bodies can only be reviewed by it “if the breach of EU competences by the EU body is obvious and the act in question leads to a structurally significant shift in the arrangement of competences between the member states and the European Union to the detriment of Member States”.

So the GCC implies a test for the seriousness and structural impact of breach of competences of the EU institution. I am not sure how this test can be made operational, though.

Also note that the decision relates not only to decisions of the EU Court of Justice (as suggested by EUobserver), but other EU institutions as well.

The Political Salience of the Burqa Ban

Henning Meyer from the Social Europe Journal turned my attention to this report of the Pew Global Attitudes Project measuring the public approval of the ban of face-covering veils (burqas). What I did was to compare the data for the approval rate with the percentage of the Muslim population in the respective countries (data was obtained from the 2009 report of the Pew Research Center). Not surprisingly, there is a strong positive correlation between the percentage of Muslim population and the support for the burqa ban (correlation= 0,84, R2=0,71).

The US citizens are somewhat more tolerant than the average and Britons somewhat less, but the overall correlation is quite strong.

This post is cross-posted on Think 3: Developing World.