Économie et Finances

How we could reach an economic government within the EU

This paper is based on my answers to a questionnaire by PC 1 “Institutions and governance” of the JEF-Europe on the topic of economic government within the EU and the idea of a “core Europe”.


Why more integration is necessary?

The need for more economic and fiscal integration within the European Union is not anymore to be demonstrated. The sovereign debt crisis, which has been shaking the world – notably the Eurozone – for over a year, shows that it is necessary to make sure that national budgets are well managed.

More convergence would, moreover, reduce some economic imbalances within Europe, e.g. commercial imbalances between the German trading surplus and other countries’ trading deficit. Furthermore, deepening the integration would also make cross-border business easier, which could stimulate growth.

Another way to stimulate growth would be creating a strong European budget – which could be partly financed by Eurobonds –, managed by a true European federal economic government, while States are all on an austerity path. In fact, this idea was implemented in the USA, where the federal administration adopted stimulus packages, while most States tightened their belts, so that the recession was not as terrible as it could have been.

Last but not least, having a European budget managed by the EU institutions would enable the citizen to feel better what the European Union does for them, as the EU could at last influence various socio-economic conditions. This would contribute to a better acceptance of the EU and to the spreading of a European identity.

So, we have to go towards more economic federalism in the EU. The question is: how?

There are currently different competing ideas: changes in the EU Treaties, a new Treaty outside the EU framework to form a “core Europe”, or even keep the Lisbon Treaty.

At the time, it looks like it is impossible to reach a deeper integration involving all 27 member States. The Eurozone members are only 18, i.e. two thirds of the whole EU. Some states are hesitating to abandon further sovereignty, while the British government stands firmly against this idea. Therefore, a “core Europe”, gathering at least the Eurozone countries, seems the most realistic solution. But it must remain open to the other Member States, especially those who will join the single currency in the future. So, I believe it is especially important that this happens within the EU institutional framework.


A new Treaty?

Unlike other federalists, I don’t oppose the measures announced to be in the new “fiscal pact”. Giving the European Court of Justice (ECJ) the power to institute legal proceedings against a State when it does not respect deficit rules is normal, as these rules are part of the EU legislation. Moreover, opponents argue that many measures of the future “fiscal pact” already exist, e.g. in the “six-pack” which includes a reform of the Stability and Growth Pact (SGP) and a stronger monitoring of the national economic policies. Putting these measures in reformed EU Treaties would give them a European “constitutional” status.

Modifying the Treaties requires, of course, unanimity among Member States. UK, a fierce opponent to deeper integration, was isolated at the European Council of December 8th/9th. Wouldn’t it be an opportunity to put pressure on it? A “stick and carrot” method could be used, the stick being the isolation if UK refuses to accept further integration, at least for the willing countries, and the carrot being an offer to be associated to the discussions. I believe that such an association would be legitimate only if the “core Europe” was built within the EU framework.

But anyway, the measures announced to be in the so-called “fiscal pact” are not sufficient. It is time to go further.

A first step would be to create a true European budget with autonomous resources (have a look at the proposals of some MEPs and European political parties!). This budget should be managed by the European Commission, which would act as “European economic government” under control of the European Parliament and the Council. This European budget could be partly financed by Eurobonds. Furthermore, the European Central Bank (ECB) could act as a “lender of last resort” for the EU and not the States; this could satisfy both the supporters and opponents of a stronger intervention of the ECB on the bond markets. To guarantee a good management of this budget, the European Commission would have to meet strict criteria regarding the potential debt and deficit. As I said above, this budget could be used for creating growth in the EU, while the Member States are running policies of austerity to return to more balanced budgets.

Further steps would include a progressive increased fiscal and social coordination (or harmonisation, for the willing States) under monitoring of the EU Commission, and an increase of the European resources along with EU new socio-economic competences.

Now, couldn’t this be achieved with the current provisions of the Treaties? I particularly refer to one disposition: the enhanced cooperation (article 20 of the Treaty on the European Union – TEU). If, as many people argue, the enhanced cooperation cannot be used in our case, the reform of the Treaties should also include a reform of this procedure. But let us have a closer look at the enhanced cooperation.

More coordination through enhanced cooperation?

Enhanced cooperation is ruled by article 20 of the TEU and articles 326 to 334 of the TFEU.

It is open to a minimum of nine Member States, “within the framework of the Union’s non exclusive competences”. This procedure shall “aim to further the objectives of the Union, protect its interests and reinforce the integration process”. Of course, “any enhanced cooperation shall comply with the Treaties and Union law”.

It is also important to notice that the Member States not participating in the enhanced cooperation “shall not impede its implementation by the participating Member States”.

A procedure involving the three main European institutions (EP, Commission and Council) has to authorize the enhanced cooperation. Given that Great-Britain was isolated during the European Council of December 8th/9th, we may consider it realistic that the authorization would be granted, especially as the decision is taken at a qualified majority, not unanimity.

There are some people who argue that the enhanced cooperation does not allow a further abandoning of sovereignty. I have two comments about that:

1) What is the aim of “enhanced cooperation”, if not more integration?

2) Abandoning sovereignty is, in itself, an act of sovereignty.

The Stability and Growth Pact (SGP) consists of two regulations adopted in 1997, i.e. it is European legislation regarding the national budgetary policies. But as anyone knows, budgetary policy is mainly a national sovereign competence. Therefore, we may conclude that an increased economic and fiscal integration lies within the “framework of the Union’s non exclusive competences”.

I also remind that, in my reflexion about a reform of the European Treaties, I indicated that the first step should be a true European budget with autonomous resources, i.e. resources that come directly to the EU, not national contributions. All ideas regarding the establishing of a much more sizeable European budget imply no further abandoning of sovereignty! Of course, some Member States could refuse this. And here comes the enhanced cooperation: the willing States (it should be at least the Eurozone members) would set up a system of direct revenue for the EU, i.e. a tax that would be the same all across the territory of these States, and the EU institutions would use this budget to stimulate growth in the participating countries. This enhanced cooperation could then, just like the second step I mentioned above, also include further economic, fiscal and social coordination (or convergence, where needed). More coordination or convergence, as well as more scrutiny from the European Commission, does not mean a complete loss of sovereignty! But it is necessary, if we want to continue to share the same currency; monetary and budgetary policies cannot be fully separated.

Let us record that federalism doesn’t need to mean a central European State controlling everything; it could perfectly work on the German or American models, where the federal State has some competences (and a budget corresponding to these competences!) and the federated States have the rest, applying the principle of subsidiarity.

I think this shows that we could solve the current crisis even without a Treaty change.

Before ending this paper, I would like to say a few words about what should happen, if we go further with an intergovernmental Treaty outside the framework of the European Treaties.


In last resort, an intergovernmental Treaty outside the EU framework

This should be the solution only if no reform of the Treaties and no enhanced cooperation can be implemented. In this case, a “coalition of the willing States” (again, at least Eurozone countries) would have to resort to an international, intergovernmental Treaty.

But in this case, I insist that all possibilities to use the European institutions should be studied, despite being outside the EU framework. The impact on the current institutional organisation of the European Union should be minimized. For example, the role of the “Council” should be played by the ministers in the Eurogroup and their colleagues from States that would like to join this Treaty on economic government in Europe. Another idea is that a majority of members of the “Euro-Parliament” should be MEPs coming from the participating States. And what would be the possibilities to appoint a “Commissioner responsible for budgetary policy”? (Though this last point is probably impossible to realize in the case of a new Treaty outside EU framework…)

It is not too late, we may still act!

In conclusion, I believe we have the tools to tackle the current sovereign debt crisis that affects notably Europe and the Eurozone.
Many analysts say that the only solution is more integration. Only the political will is currently not strong enough. But let us be optimists: things are slowly changing; under the pressure of the markets, the governments are breaking taboos and they adopt measures, though insufficient, to increase economic, fiscal and social coordination.

Ecrit par Pierre-Antoine Klethi, étudiant en master 2 ( double diplôme Sciences-Po Paris et Sciences-Po Strasbourg.)   

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Une réflexion sur “How we could reach an economic government within the EU

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