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EMU Crisis, Barroso and the Inter-Institutional Balance

19. December 2013, von Adriaan Schout, Comments (0)

The start of 2014 marks and important turn in the EU: the euro crisis seems over, everyone is getting ready for the ‘this time it is different’ election campaign for the European Parliament, and the EU has to come to grips with a new president and, possible, a new balance in the inter-institutional relations. It is this set of conditions that typify the current situation in European integration in which not all is what it seems. The reason of the current confusion is that we have not come to terms with the institutional fall out of the euro crisis.

The Lisbon Treaty was supposed to be the mother of all treaties putting an end to the need for further treaty reforms. The EP was a clear winner with new voting rights and the Commission was regarded as the main loser. The extent to which the European Council was the real institutional winner only became clear as the euro crisis advanced. Member States abhorred Barroso and his Commission so that new tasks were located elsewhere – EFSF/ESM to a special body in Luxembourg, banking control to the ECB. Yes, the Commission acquired an independent budget tsar but the real bite and the extent to which this commissioner is really independent are still in the balance. The first EU semester of Rehn gained applause; his second harvested doubts. Beyond doubt, however, seems to be the president of the European Council Herman Van Rompuy. Whilst Barroso was seen as a ‘pitiful coward’ who thwarted the Commission’s right of initiative, the European Council could shine under the seemingly spirited leadership of Van Rompuy.

However, the winner of the euro crisis might well be Barroso. Certainly, he has not nearly been the leader everybody had hoped for and he is known for his vanities. However, he showed himself able to play three games at the same time. First of all, he was wise enough to recognise that in the build-up of economic structures, heads of state had to come to grips with new rules – and loss of sovereignty. Therefore, he avoided collusions where there was no possibility to win. Knowing when to pick a fight is probably one of the most important characteristics of a Commission president. Secondly, he defended the traditional role of guardian of the treaties. How weak was he really? Commission president Barroso was not weak-hearted when it came to blocking state aid to sacred cows such as Opel and Citroen or to breaking up banks in Member States. France was attacked over fundamental human rights when groups of Roma were expelled – and, painful for Sarkozy, while a summit was going on and maximum press visibility was ensured. Similarly, free movement of people is defended with gusto against political pressure from countries such as Germany, UK and the Netherlands. Thirdly, Barroso reinforced the institutional relations with the European Parliament. The ‘this time it is different’ slogan is a next step in this trend. Barroso has been publicly expressing ‘governmentalisation’ ambitions and referred to commissioners as ministers in his economic governance blueprint. And European ministers need a true European Parliament.

Now that the important economic governance rules are being formulated and implemented, it is to be expected that the European Council will have less to do. Hence, the successor of Van Rompuy will be (much) less relevant. If, of course, Van Rompuy was really as relevant as seems now – he might well have provided the only fig leave behind which Merkel could hide her power. What will remain after the elections of 2014 is a stronger bond between EP and Commission and a more symbolic role for the president of the European Council. So, the EU may have a president at last: the president of the Commission.

Dutch minister for foreign affairs, Frans Timmermans, wrote in the Financial Times that he would now like to see that the Council broke into this ever closer bond between the European Parliament and the Commission. In 2009, the Benelux countries argued for a stronger role for the Commission. In view of the ‘governmentalisation’ of the Commission, the Dutch now argue in favour of strengthening the European Council. This may well be a big compliment to Barroso: the ‘weak president’ has thwarted the inter-institutional balance.
Before 2008, the EU basically consisted of the internal market and was based on the community method. At the start of 2014, the EU consists of two veritable pillars: the internal market and the political economic governance pillar where Commission and EP are looking for a different (political) ball game all together. Of course, the euro crisis has been hugely instrumental in this development. Yet, judging by the results, the position of the Commission under Barroso has certainly not been marginalised. History may well be kinder to him than his current critics.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Doubts about Rehn’s Position as Independent Commissioner

7. May 2013, von Adriaan Schout, Comments (0)

Rehn has spoken. Friday 3 May, the independent Commissioner for economic and monetary affairs gave his verdict on the state of the national economies in the EU. His statements were remarkable in several ways and come at a time when he has to prove his worth as an independent Commissioner. France, which has been dragging its feet regarding the necessary reforms, has received two extra years to bring its budget in order although its deficit is 4,2% and its public debt is moving towards an incredible 96,2% next year. The Dutch are in a better position but received a one year delay while allowing the public burden to increase instead of pushing for reforms. Newspapers and civil servants point to heavy lobbying of, in particular, France.

How do we know whether Rehn has spoken words of wisdom? Whatever Rehn says, he will always be criticised by many. If he criticises, for example, Berlusconi for having failed to reform, even his Italian colleague Antonio Tajani (Commissioner for industry) openly speaks out against him. If he cautions over austerity, he is criticised by EPP MEPs for failing to keep Member States to stick to the rules of the Stability and Growth Pact (SGP). Even Barroso has been going over Rehn’s head by stating that austerity has reached the limits of popular support – displaying evidently that Barroso is primarily a politician. Barroso may not have contradicted Rehn over the need for some slack, but his comments have placed Rehn’s work as independent Commissioner in a political light and Barroso has hinted at differences in the Commission. Other attacks come from economists and Nobel-prize winner Paul Krugman made fun of Rehn’s over-optimistic growth forecasts in the Financial Times and slashed his emphasis on austerity (‘Rehn of Terror’). Hence many, including his colleagues in the College, disagree with whatever Rehn concludes.

Rehn’s advice is easily distrusted. Therefore, the analyses and recommendations of the European semester commissioner should be widely recognised as the result of careful examination of long term trends in national and European economies. The weight of his words depends in many ways on the respect peers in governments, journalist and financial analysts have for the independent Commissioner as institution. His prestige depends on the analytical quality of the reports of DG EcFin, on the reputation of this staff and on the extent to which procedures are trusted to guarantee quality and independence.

Much has been achieved in terms of ensuring the quality of the work of DG EcFin, but not enough. First of all, there are trends that are incompatible with the role of an independent Commissioner. The Commission is increasingly presenting itself as a political body, searching political support from the European parliament and calling itself a ‘government’. This seems to be a worrying step away from the traditional focus of the Commission on content as envisaged by Jean Monnet. An ‘independent Commissioner’ as part of a political ‘government’ seems to be a paradox if not a straightforward contradiction. Pleas in Barroso’s State of the Union (2012) to operate ‘independently under the supervision’ of the European Parliament are equally confusing.

Secondly, the process through which the independent Commissioner formulates conclusions and economic advice to Member States needs to live up to standards such as independence from political influence from both within the Commission and from Member States, quality (size and expertise) of the staff of DG EcFin and transparency. However, if we try to piece together how DG Ecfin operates within the Commission, we cannot conclude that quality and independence are guaranteed.

To start with, reliable statistics are the basis of any economic report. It was already known to insiders that European statistics were unreliable but the Greek crisis in 2009 proved that some countries provided rubbish if not lies. No economic system in the 21st century should aspire to function on the basis of a suspicious statistical system. Moreover, if only for its prestige, Eurostat should not fall under the College of Commissioners but should be an independent agency.

Moreover, although major improvements are to report in terms of economic governance resulting from the 2- and 6-pack, the European semester is still not supported by a transparent depoliticised analytical process. DG EcFin has been enlarged but it is still unclear what is being done with its staff reports. The parts of DG EcFin that are independent remain in any case dependent on other – political – DGs for sector input. Also, the staff papers are forwarded to the College. The staff papers are ‘the sole responsibility’ of the independent Commissioner although officially other Commissioners may pose questions and other DGs are consulted in the writing of SGP reports and of conclusions of the macroeconomic imbalances procedure. Furthermore, the President of the Commission is supported by a Chief Economic Analyst in the process of the drafting of the recommendations. It is unclear why Barroso has an additional analyst if reports are produced by Rehn and DG EcFin. Finally, there are actually confirmations that the recent statements by Rehn have been strongly influenced by national lobbying.

Hence, also the production of the country reports and recommendations should be set aside in an independent agency – just as the 6-pack dictates that Member States should have independent budgetary authorities. If there is an ‘independent Commissioner’ he should not be part of a College. This would also improve the transparency of the process.

As it stands, the legitimacy of the Commission’s role in the renewed European semester remains weakened by compounded functions and procedures. One thing economic governance requires is reliable and transparent institutions. The Commission, of course, will be strongly opposed to any discussion of redesigning its tasks and powers. A pity for those who hoped that the European semester was the start of something new.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Why Economists Should not always Ask for Centralisation

25. February 2013, von Adriaan Schout, Comments (0)

Many say that the eurocrisis is not about the euro but about financial markets. Whatever the precise cause: it seems to be a purely economic crisis. Of course, the financial sector was a motor behind the crisis, but there have been other drivers too. National conditions – such as high private debts, corruption and inflexible labour markets – inflated the bubbles and accelerated the economic crisis once these bubbles burst. With this in mind, it is somewhat strange to see that the bulk of the economic discussions about solutions for the eurocrisis concern deeper integration at EU level.

Economists have pointed to the impossibilities of working with a half-baked EMU. The euro started as a Monetary Union while the Economic (now called: political) Union was lacking. What this political union should have included, according to the economic analyses, are a central bank with more responsibilities, EU bonds to reduce interest rates and solidarity mechanisms. A second focal point in the debates is the question whether austerity is wise. Economists are happy to call for EU growth initiatives and transfers.

Given these profound economic debates, it is no wonder to see far-reaching economic solutions in Barroso’s Blueprint for a genuine EMU: an additional EU budget, steps towards eurobonds, etc.

The consequence of these economic solutions is centralisation (federalisation) including treaty change. Hence, Barroso’s plans are also about transforming the Commission into a European government, European taxes, a larger EU budget and a stronger role for the European Parliament. Many economists de facto want a political union.

Yet, northern countries lack trust in southern governments and are therefore unwilling to accept EU bonds, to pay for a banking resolution mechanism or to accept other moves towards a transfer union. In the end, the EU seems to remain stuck with the Mundell-Fleming ‘impossible triangle’ that states that the combination of fixed exchange rates, free capital movement and independent monetary policy cannot be maintained.

This call for deeper integration seems perverse integration. The eurocrisis originated at national levels. Hence, the national level is the level where solutions have to be found and implemented first of all. Understanding the eurocrisis requires institutional, in addition to economic, analysis. Banking supervision was failing in all countries. National statistics proved unreliable. National political parties suffer from corruption and regional governments have been deeply involved in the housing bubble. The relevance of the national level is also with a view to the fact that the national publics lack enthusiasm for this federalisation process.

National institutions determine the state of the economy and many of these institutions have been ineffective. It is impossible to construct an EMU with (semi) failing states. Politicians need to do what they hate the most: accept independent European (in whatever form) scrutiny of their national administrations. This involves assessing the independence and quality of national statistical systems, national budgetary control authorities, deregulation authorities, tax collection systems, etc. In addition, scrutiny is needed of the quality of social economic councils in Member States, of the size and quality of  regional governments, of the management of political parties, of transparency policies in member states, of labour market and education systems, of anti-corruption policies, etc.

The measures proposed by Barroso to strengthen the EMU will become much less needed if Member States possess institutions with self-cleaning capacities. It is contrary to the subsidiarity principle in the Treaty to centralise decision making in the EU when many of the problems originate at national levels of government and when further measures can be taking at the national level. The food crisis in the 1990s was not solved through a ‘Food Union’ but by building food authorities incorporated in European networks supported by appropriate legislation and independent national controls. Similarly, competition policy in the EU is now based on independent national authorities. If Member States do not trust each other’s administrations, steps towards a closer union will be impossible. Similarly, if Member States have effective national institutions, there will be much less need for centralisation. By the same token: centralisation will fail – and lack public support – if national governments are weak. Evidently, reforming national institutions cannot be done without EU networks and EU legislation, but the bulk of the reforms should be national. This could also prevent that ‘Brussels’ is used as scapegoat, even though the Commission will always be put in the position to criticise Member States, if they lack self-correcting mechanisms. Weak Member States will, therefore, create an automatic dislike of the EU.

This focus on national institutions is also needed to break the stalemates in social policy. A growth agenda is partly blocked due to lack of trust in national institutions. Triple-A countries are afraid of reducing reform incentives elsewhere. Yet, without social support, the euro could fall apart due to the consequences of collective austerity. However, growth will not come from more money (there is no), but has to be based on sound national policies and sustainable national institutions.

National institutions should be targeted first of all in the discussion on deeper integration. Barroso’s agenda towards a genuine EMU seems logical to economist who ignore the importance of national institutions but it will never work or it will require a transfer union that is politically extremely dangerous.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Blog Authors

Adriaan SchoutAdriaan Schout

Dr Adriaan Schout is Deputy Director Research/Europe at Clingendael, Netherlands Institute of International relations. (read more...)

Alexandre AbreuAlexandre Abreu

Dr Alexandre Abreu is a 33-year-old Portuguese economist with a PhD from the University of London. Currently he is a lecturer in Development Economics at the Institute of Economics and Business Administration, Technical University of Lisbon, and a Researcher at the Centre for African and Development Studies of the same University.

Almut MöllerAlmut Möller

Almut Möller is a political analyst in European integration and European foreign policy. She is currently the head of the Alfred von Oppenheim Centre for European Policy Studies at the German Council on Foreign Relations (DGAP) in Berlin. (read more...)

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