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Too Much Trust in EU Institutions

9. January 2014, von Adriaan Schout, Comments (0)

The general impression is that the EMU zone (which gathers countries belonging to, or potentially belonging to, the euro) suffers from a crisis of trust. How can we move forward with European integration when people lack trust in EU institutions? The facts may however be quite different: there is too much trust in the EU institutions and too much trust in the reform capacities in the EMU countries.

The guiding rule for EU-leaders has been to restore trust in the EMU and to get economic growth in the EU back on track. Many steps are being taken to rebuild trust ranging from fiscal compact and banking union, to measures to increase the relevance of subsidiarity. Overall, these measures and the fight for trust will – optimistically – lead to deeper integration.

However, the EMU zone may not suffer from a lack of trust. Paradoxically, this is bad news. First of all, there is generally more trust in EU institutions than in national institutions. Over the past few weeks, I sat in meetings with senior officials and politicians from different parts of the EU. On the question whether they would like to see the EU institutions take over economic tasks and develop into an EU economic government, the answer was decidedly ‘yes’. According to the responses, national institutions (including central banks), have been the cause of the economic and banking problems.

This trust in EU institutions is in accordance with the Eurobarometer which indicates that the people in 17 euro countries have (much) more trust in EU institutions than in their national governments. The bottom of the list with trust in national governments shows euro countries Spain (8% trust national government), Greece (9%), Slovenia (10%), Portugal (10%) and Italy (11%). Other countries with low national trust and higher trust in EU institutions include France (only 24% trust national government) and Ireland (18%).

The consequence of this situation is that there is not so much a lack of trust in the EU (and the related euro institutions) but a national trust crisis – and EU institutions are trusted to manage national economies. If the discussions of the past week are anything to go by, there is a majority of countries in the EU that would like to see the development of stronger European economic governance because they are themselves too weak to run their own economies. In the words of a minister from a country preparing for joining the euro: “the Commission can better decide what is good for us”.

The second reason why there is not a lack of trust in EU institutions is that the EU seems to suffer from traditional over-optimism. Judging by the hope that the EU is better in taking economic governance decisions than national governments closer to their voters, this over-optimism still exists. Greece, Portugal and East European countries were allowed into the EEC/EU. Similarly, accession into Schengen also proved quite easy. Membership was assumed to lead to reforms. In the same vein, despite an argument between monetarist and economic governance economists, euro membership was granted ahead of economic reforms, trusting that membership would do the trick. Hence, the EU has been gambling with economic history based on naïve trust in EU reform mechanisms.

Thirdly, countries have been trusted to be flexible and to develop. However, the French competitiveness index fell from 15th position in 2000 to 22nd in 2013. Italy’s competitiveness eroded as underlined by the drop from 24th position to 49th. Greece managed a slight but hugely painful improvement from 33rd to the 31st position.

Deeper integration is on the agenda. The EU Council meeting of December 2013 concluded additional steps towards banking union and economic contracts. The basis of the economic governance, however, remains a collection of mostly week states; states that seem to have given up managing their own economies and that place their hope in the EU. The EU might as well be doomed with this trust in the EU to solve national reform problems.

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.”

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.”

What is EU Membership all About?

19. December 2013, von Almut Möller, Comments (0)

This is my last entry in the Eurozone 2013 blog. I want to conclude with some general remarks tackling what sounds like a rather innocent question and is the subject of a paper I am working on: What is EU membership all about? The question was put to me for a talk at a summer school in Britain earlier this year. Needless to say, the British are particularly concerned with what I call the changing notion of EU membership. Is it essentially about the single market, Eurozone membership, or about a community of rules and values? All of them really, one might respond, but things are not that simple anymore.

Ever since the governments of the Eurozone started to repair the dysfunctional economic and monetary union the notion of membership has been blurred. This development is nothing new – we have seen that the essence of EU (formerly EC) membership shifted along with successive treaty reforms, most markedly with the Treaty of Maastricht that significantly widened the scope of joint policies. With the need to further integrate EMU in the course of the crisis we are currently seeing yet another shift of membership – one that might turn out divisive.

What kind of union are we talking about? This question challenges not only the political identity of euro and non-euro members of the EU-28 such as the UK and Poland. It also poses questions for countries eligible to or on their way to membership such as Serbia and the other non-EU Balkan states or Turkey for that matter. While the pre-crisis European Union was by no means the monolithic bloc as which it was often portrayed the notion of membership got even less clear cut in the course of the crisis.

Why does this matter? Has the union not been dealing with different layers (a colleague once branded it the “European Onion”) for quite some time, the euro and Schengen being the most prominent examples? From an outside point of view, the demarcation between Europe as a continent, the European Union of 28 members and the eurozone of 17 – 18 with Latvia joining in 2014 – is not that clear anyway and not so important. For EU Member States, however, the degree to which they participate in the union’s policies clearly matters. It determines the rules that countries have to adopt, their rights and obligations, their access to policies, institutions, decision-making and resources. It matters to the daily reality of citizens in the EU’s Member States – think, for example, of borderless travel granted only to Schengen members. And, one aspect that gained particular relevance in the course of the crisis: the degree of participation in the EU’s policies, in particular EMU, influences the overall clout of Member states in the Union. The power question is back.

Arguably the direction of the Union is defined by the members of the eurozone nowadays. True, most non-Euro members signed up to the new legal arrangements that were adopted since the beginning of the crisis, and countries within the eurozone tried to keep the ‘outs’ close to their bosom. A fragmented Union is risky for all Member States, and realising this has so far been the glue for cohesiveness. But will it hold as the eurozone continues to move ahead next year?

The notion of membership has also been challenged when it comes to the Union’s values. What role do Member States still attribute to the values of their founding treaties? How could Member States invite Greece to join the Eurozone with such obvious deficiencies in its state functions and its market economy? A question that not only the union’s newest member Croatia might ask after having been through a detailed and demanding fitness regime in preparation for accession. Then, how on earth was it possible that the most important countries of the eurozone, Germany and France, both on several occasions violated the Stability and Growth Pact ten years ago without being sanctioned by the European Commission – arguably the early kiss of death for the euro in its current shape? What makes the Hungarian Prime Minister Victor Orbán so confident in pushing his luck with fellow EU countries, turning his back on fundamental rights and freedoms at home?

While the EU has developed a sophisticated set of instruments to encourage good behaviour and to punish when its rules and values are disrespected in its enlargement policy, it struggles to pull similar carrots and sticks with fellow EU members. Overall, the respect of rules and values has been watered down – consequently, member states take a certain freedom in interpreting them these days. This is a most damaging side effect of the crisis that member states will have to deal with in years to come.

The upcoming elections to the European parliament will demonstrate how vulnerable the Union has become with regard to its values. Parties and movements that claim they want a different Union but that in reality don’t want the Union to work will manage to capitalize from this worrying development.

There are two lessons from 2013 that policymakers should bear in mind in 2014: EU membership must not be divisive, and it must bring values to the fore again.

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.”

German Government Embraces Multi-Speed Europe

25. July 2013, von Almut Möller, Comments (0)

It almost slipped off my radar in the summer break, which Berlin dived into at the end of June: the German government seems to change course on its stance towards a multi-speed Europe or, as analysts like to put it, differentiated integration.

If this is really the case then here is some revolutionary news that will change the face of the union as we have known it.

So, what happened? In an opinion piece for Frankfurter Allgemeine Zeitung, one of Germany’s leading daily newspapers, Foreign Minister Guido Westerwelle made the case for a hands-on approach towards different speeds for Europe last week.

It is worth quoting what I consider the essential passage of the piece:

“The dilemma is that in Europe 17 countries share a currency, but there are 28 in the Union. How can we move forward given this tension?

That will only be possible if we start thinking in new ways on integration policy. Reinforcing the eurozone means a clearer commitment by Europe to the principle of different speeds than was previously the case.”

To my knowledge this has so far been the most explicit statement on the need to embrace different speeds in order to engineer the widening gaps between the ‘ins’ and ‘outs’ of the eurozone by a member of the government over the past years. Up till now, the federal government carefully avoided to openly address the de facto decoupling of the eurozone from the wider union. Officials frequently pointed out that, according to the treaties, the euro was the currency of the whole union. With a few exceptions all EU members were ‘pre-ins’ to EMU. Obviously, such an approach reflects the destructive potential that multiple speeds might develop for the union as a whole. In the course of the crisis centrifugal forces have already stretched the cohesion of the union to its limits, and the eurozone is far from being a healthy core naturally taking the lead.

It is noteworthy that in his piece Westerwelle now uses the “17/28”, and not the “25 and a few odd outs” formula usually put forward by the government. Now, the question obviously is what to make of this? Arguably, this is a minister known for initiatives such as the “future of Europe group” that have never quite taken off. The newest declaration adopted in Palma de Mallorca this week went down almost unnoticed. It might well be that the minister’s move, regardless of its timeliness and strategic value, is lost in the silly season. Even more importantly, it depends on whether his message is supported in the federal chancellery. This is where all major strategic decisions have eventually been taken on the Eurozone over the past years. Clearly, the foreign office suffers from being marginalised even further over Germany’s ‘ Europapolitik’. It is possible that the minister and his aides in the foreign office now make an attempt to win back some territory over the strategic questions related to the future of the union. But will this initiative fly?

Politically speaking the contentious issue of multiple speeds is much more relevant for both insiders and outsiders of the eurozone than the initiatives of Guido Westerwelle to trigger an institutional debate on Europe’s future. In terms of substance there might well be allies in Paris on differentiated integration, certainly more so than on the institutional questions over which the German foreign office struggled to bring the French counterparts in. Interestingly, Jacques Delors has been promoting his ideas of rethinking EMU and reconciling it with what he calls “Greater Europe” on various occasions over the past months. Is he intellectually paving the way for the socialist leaders in Paris to find common ground on the future of Europe with Germany again?

It is difficult to tell whether the minister’s piece reflects the wider views in the government, and whether it turns into government policy in the fall. The federal elections could obviously make a difference if they brought a different coalition into office. But if we see more of the same in September, and if Westerwelle’s move is indeed part of the overall thinking in the German government (remember that Wolfgang Schäuble has a soft spot for differentiated integration too), we might see Germany starting to actively engineer a new kind of union under the next government.

“We must always have an eye on the part, but also on the whole” is how the foreign minister concludes his piece. Is Germany about to plot out in greater detail a strategy for a Europe of different speeds that balances the needs of the eurozone with those of the wider union? There will be tough issues to address in the coming months and years. The most important one is clearly whether it will be possible at all to reconcile the future economic and monetary union with the common market as a whole. And what is the glue that will bind the new layers of membership together? In terms of substance, process and alliances there is still a great deal of thinking to be done to make a union within the union work.

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.”

Europe – Absent?

25. February 2013, von Almut Möller, Comments (1)

This is my first entry in the Eurozone 2013 blog. Based in Berlin, in the following months I will comment on the steps taken by EU leaders to reform the Eurozone from the German capital, and will include my observations on the German euro debate.

As it happens, the German President, Joachim Gauck, has just given his long-awaited Europe speech in Berlin. Surely, the outside observer might think, his speech was only one of many interventions in a Europe debate in full-swing in Germany. After all, this is a key country when it comes to fixing economic and monetary union (EMU), with more major steps that will affect the direction and functioning of the eurozone and the overall EU likely to be taken this year. Surely, one might think, in a year of federal elections there will be competing political and economic visions on the future of Europe, and the opposition parties will want to mobilize their respective constituencies in the battle for the chancellery.

You will be surprised to hear that compared to what is at stake, and contrary to what we have seen in the French 2012 presidential as well as in the 2013 Italian election campaign: Germans so far are not fretting about Europe.

I see three main reasons for Europe being largely absent from the campaign so far:

1. Crisis, what crisis? The crisis is not making the headlines, at least for the moment. And with the German economy still doing well, a majority of Germans – unlike fellow EU citizens in other countries – simply do not feel the impact of the crisis.

2. The Merkel factor. Germans tend to trust Angela Merkel’s ability to do what is necessary to help the countries in crisis to recover (and there is a sense of solidarity by now), and to keep an eye on Germany’s interests when negotiating the future make-up of the euro governance with the other euro members.

3. The consensus country. Because of 1) and 2), all opposition parties struggle to challenge Angela Merkel’s conservative party. Adding to this is that Germans currently seem to like the idea of a ‘grand’ coalition of Conservatives and Social Democrats, so there is a tactical temptation for the Social Democrats not to bark too loudly.

Going back to the president’s speech; it is unlikely to trigger a euro debate. The president in the German system does not have political clout and by custom does not get involved in politics. In today’s speech, President Gauck did not cross this line. But the office is traditionally used to shape fundamental debates, and I believe this speech will be influencing the parameters of the Europe debate among the elites in the months to come.

Indeed, the president presented some fresh thinking. Gauck, a pastor and civil rights activist in the German Democratic Republic, put Europe’s citizens at the centre of his hour-long speech. Hardly did he touch on the crisis, on the role of governments, and on detailed suggestions on how to make the European Union work better.

He must have felt that in Germany and across Europe, citizens feel disempowered by the crisis, by nonstop rhetoric that makes them fearful, by complex and technical measures difficult to grasp, and by diplomats negotiating about their future behind closed doors.

Gauck’s language therefore was a language of empowerment. This was the vision of a democrat, a free citizen of Europe, wanting to encourage Europe’s citizens to live up to the task of being citizens in a European res publica, learning to shape their future together.

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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