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The case for democratic economic governance in the EU-27 – MANUEL SARRAZIN
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The case for democratic economic governance in the EU-27

The European economic integration process has come a long way. With its export-focused economy, Germany benefits like no other Member State from the European internal market and from the convergence and cohesion efforts of the European Union. The stability of the internal market and of the euro currency area are therefore matters of particular interest to Germany. Moreover, the eastward enlargements of the Union to include countries beyond the former Iron Curtain not only overcame the division of Europe but also provided Germany with fresh economic impetus. The European integration process, however, must not grind to a halt at this point. Although the Treaty on the Functioning of the European Union, as amended by the Treaty of Lisbon, prescribes that “Member States shall regard their economic policies as a matter of common concern and coordinate them”, governments in the past have, in practice, pursued economic policies with a strongly national flavour. As a result, despite progressive integration within the internal market, dangerous imbalances have emerged, which must be redressed. Europe has not been strong enough to prevent flaws in national policies from endangering the entire Community. It is evident from the European manifestations of the global economic crisis that it is high time to put an end to particularist economic policies. Even in areas that have hitherto been at the heart of national political sovereignty,   we need wider European powers, otherwise Europe will lack the democratic legitimacy to come up with substantive responses to the present crisis.


It has now become apparent that the Maastricht Treaty was primarily a crisis-avoidance mechanism but was not equipped to defuse actual crises. The possibility of a serious financial and economic crisis like that of 2008 was not factored into the European Treaties at the time when they were formulated. Europe cannot afford to explain this crisis away as a freak accident that may be disregarded. Crises are inherent recurring features of a market economy.


In this paper we set out proposals for the European institutionalisation of budgetary, financial, economic and social policies and their democratic legitimisation.


The future of the European institutions


Misunderstood foundations

Many of our institutional proposals require amendments to the European Treaties. Yet it is wrong to try and plan the future of the EU on a drawing board and indeed to overlook past experiences in the field of European integration. We believe that the following words spoken by Robert Schuman back in 1950 are still valid today: “Europe will not be made all at once, or according to a single plan”. Through the Treaty of Lisbon and enlargements and even through the many euro rescue packages of recent years, the European Union has built itself new foundations. We are firmly convinced that the future of Europe must be built on these foundations and that the EU cannot afford to start again on a completely new or totally different basis. Among the causes of the crisis is the fact that the profound changes which the EU has undergone – not just the pre-enlargement EU-15 but the whole Union of 27 – have yet to be reflected in the policymaking of the German Federal Government. The way out of the crisis is not the Christian Democratic route followed by Chancellor Angela Merkel, which seeks to reverse the principle of majority decision-making and draw new lines between ‘old’ and ‘new’ Europe by emphasising the eurozone as a group of 17 rather than a potential group of 25 countries. The function of EU economic governance would be to organise, under the oversight of European institutions – the European Commission and the European Parliament – the accommodation of the sometimes highly divergent interests of EU Member States and regions at their diverse stages of development in a peaceful, legitimate, fair and democratic manner. It would be foolish to expect the EU to resolve all existing differences and antitheses, the historical constants that characterise our continent. What we need is a more democratic and legitimate system of supranational union in those areas where we recognise a requirement for ‘more Europe’.


Legitimacy – the 64,000-dollar question

One basic problem in the crisis has been the growing divergence between decision-making and legitimacy. The crisis in the eurozone illustrates, on the one hand, how little say the nation state, by which people’s mindsets have been influenced since the 19th century and from which those who govern us derive their legitimacy, still has in today’s world. The phenomenological reality of our world is becoming ever more diversified and ever more global. The communications revolution in the realms of transport and telecommunications was not at the root of global economic convergence but has accelerated that process as never before, and there has never been such a worldwide configuration of cooperation and competition in joined-up global markets. The nation states of the 20th century, at least after the announcement of Woodrow Wilson’s Fourteen Points and the emergence of the idea of a League of Nations, recognised this development and began to reclaim national political influence on the shaping of the world through international and supranational forms of collective organisation. The European Union, which developed out of the idea of a High Authority expounded in the Schuman Plan of 1950, is undoubtedly the most successful attempt at not only international but also supranational organisation.


On the other hand, the crisis in the eurozone also highlights clearly the meagre extent to which this development has been accompanied by a transfer of legitimacy to the European level. Leadership is still legitimised today through the incorporation of individuals into the community of the nation. Europe has not fashioned a ‘superimposed community’ with sufficient power and widespread popular identification to establish an order modelled on that of the nation state of the 19th and 20th centuries.


The next set of reforms we adopt in response to the crisis will not be able to effect the long-overdue closure of this gap between decision-making and legitimacy. Yet solutions to the crisis that do not strengthen the political legitimacy of the European Union will erode public support for the integration project.


On the basis of these considerations, we make the following proposals for the institutional and substantive development of the European Union:


1. Legitimacy through identification and revocability: European Commissioner for Economic and Financial Affairs, version 2.0

With the new rules and instruments in the Stability and Growth Pact, namely the six-pack and two-pack of legislative instruments tightening the Excessive Deficit Procedure and the new procedure for the surveillance of macroeconomic imbalances, Europe has, for the first time, created forums and institutions which compel the Member States to discuss national economic developments in a supranational framework and which can expose and, if possible, remedy malfunctions. These new procedures coincide with existing powers of the EU in areas such as competition law and the drafting of the EU budget. Moreover, besides the established system of legislation by the Council and the European Parliament, there have b
een numerous moves within the Council for better coordination of economic policy decisions without any surrender of powers to the EU (the ‘open method of coordination’).


We want an upgraded Commissioner for Economic and Financial Affairs:

  • to be entrusted with all the powers of the European Commission in the fields of economic, financial and budgetary affairs and to be made accountable to the European public through a robust basis of parliamentary legitimacy and oversight,
  • to be placed in charge of all economic and budgetary governance and surveillance procedures, including  the European Semester and the excessive-deficit and imbalance procedures of the Stability and Growth Pact,
  • to become the permanent chair of the Ecofin Council and the Euro Group as well as overseeing all of the administrative structures and authorities created by the euro summits,
  • to make clear what the powers of the EU are and, by virtue of the revocability of his mandate by the directly elected Members of the European Parliament, to become an anchorage point for the legitimisation of European decisions,
  • to be elected by the European Parliament with an individual mandate which may also be revoked by the European Parliament at any time,
  • to draft legislative proposals, the adoption of which must always be subject to co-decision  by the European Parliament, whether they are adopted on the basis of the European Treaties or under a gentlemen’s agreement,
  • to be vested with extended powers in the framework of the Excessive Deficit Procedure by virtue of a Treaty amendment introducing reverse qualified majority voting in both arms of the Stability and Growth Pact,
  • to be strengthened in his or her position vis-à-vis the Council through extended direct decision-making powers in the context of the aforementioned procedures.

2. Legitimisation through subjection to Parliament: primacy of the European Parliament

No later than the next-but-one European elections, the European Parliament must become the place – or one of the places – where all the main decisions pertaining to situations such as the eurozone crisis are taken. Intergovernmental decision-making by the European Council to resolve crises, as the British and Czech vetoes in connection with the Fiscal Compact have amply demonstrated, does not work efficiently and encourages individual Member States to seek special benefits for themselves. The attempts made by the German Bundestag and Federal Constitutional Court to ensure that the Bundestag was not forced into the role of a purely implementing agency were warranted, but really strong parliamentary influence on European processes and effective scrutiny of those processes will not be exercisable by national parliaments in the medium term. The increasingly prevalent impression that all Member States should seek refuge in solidarity under the wing of the German Bundestag will ultimately inflict serious damage on the legitimacy of the European tier of government. The Bundestag is needed to complete the chain of legitimacy between the EU and the German people but not to forge an exclusive link bypassing that of the European Parliament.


We call for the following measures to strengthen the European Parliament:

  • empowerment of the European Parliament to launch its own legislative initiatives;
  • more extensive co-decision powers in the realms of budgetary, economic, financial and social policy;
  • greater dependence of the European Commission on the European Parliament: following European elections, the President of the Commission should be appointed by the European Parliament from among its Members, and the composition of the Commission should be a better reflection of the political balance in the European Parliament rather than merely reflecting the political affiliations of the Council;
  • a uniform franchise in European elections based more closely on the principle of one person, one vote, as prescribed for German elections by the Federal Constitutional Court, and supplemented by a system of supranational electoral lists;
  • minimum democratic standards for European political parties.

3.      Eurozone MEPs in place of a European Parliament?

The proposals for a eurozone parliament or for differing voting configurations for euro matters in the European Parliament are a threat to the common European integration project. It would sharpen the national focus of the European Parliament and undermine the role of that Parliament as a trustee of European interests. A division into eurozone and non-eurozone MEPs would not merely create two classes of MEP; it would set a precedent by distinguishing Members within Parliament on the sole basis of national origin and presumably of national electoral lists rather than on the basis of the parliamentary rules of procedure or of an allocation of spheres of competence to parliamentary committees. This would throw open the door to the restriction of voting rights to MEPs from participating nations in other areas such as enhanced cooperation, as in the case of the Financial Transaction Tax, or the Schengen system.


We want more progress in extending the rights of the European Parliament:

  • The European Parliament could, for example, follow the example of Article 45(2) of the German Basic Law by empowering one of its committees to take decisions on behalf of the House on particular eurozone matters and to act as a counterpart with certain information rights in Council procedures relating to EMU where fast and possibly also confidential cooperation is required. All of the members of this committee could continue to be delegated by their parliamentary groups, and the committee could exercise effective oversight of the rescue strategy for the euro. The parliamentary groups would be politically committed to ensuring an appropriate presence of members from the eurozone countries. At the same time, the committee would be answerable to the House. To secure a legal basis for the involvement of this committee in EMU procedures, it may be advisable to enshrine its participation in the contractual provisions governing cooperation in the eurozone.

4.      Economic and budgetary governance and surveillance procedures: more vigorous parliamentary involvement

The new procedures referred to above have already laid the foundations for the new economic and budgetary governance structures. The European Semester, the Excessive Deficit Procedure and the Macroeconomic Imbalances Procedure have the potential to generate highly fruitful interaction between the European and national levels. To this end, procedures and objectives must be brought into the parliamentary domain and thereby become more transparent. Only if there is parliamentary debate at every level on the right way forward can the common rules becom
e politically binding.


We want to strengthen the European governance and surveillance procedures by ensuring:


  • that national draft budgets are transmitted to the European Commission and are checked by the European Parliament Policy Challenges Committee for compliance with the European obligations deriving from the Stability and Growth Pact; if a draft budget were not consistent with European agreements, the government of the relevant Member State would have to adapt it; in the event of serious failings, the Member State would be expected to take remedial action under the appropriate enforcement instrument; the imposition of such an obligation would be subject to reverse qualified majority voting in the Council, the offending Member State being excluded from the vote; the European Parliament would be consulted under the ‘gentlemen’s agreement’;
  • that the budgetary sovereignty of the Bundestag remains inviolate; recommendations from Brussels would have to be communicated to Parliament but would be incorporated into the budget by the Federal Government, not by the Bundestag; national parliaments could amend draft budgets presented by the national government, as hitherto; if the pertinent European procedural requirements were breached, the Commissioner for Economic and Financial Affairs could initiate a fast-track Excessive Deficit Procedure without a Council decision, and the European Parliament would be entitled to call the government of the offending Member State to account at a plenary sitting;
  • that the Annual Growth Survey is adopted by the European Parliament and the Council under the co-decision procedure;
  • that the European Parliament debates country-specific recommendations and participates in the adoption decision;
  • that the various stages of the European Semester are adequately discussed in national parliaments before the governments of the EU Member States send their National Reform Programmes to the European Commission and the European Parliament;
  • that the indicators and targets for the Macroeconomic Imbalance Procedure Scoreboard are set in consultation with the Members of the European Parliament;
  • that failure to observe agreed requirements under the excessive-deficit and imbalance procedures may result not only in proceedings before the European Court of Justice but also in the freezing of EU resources for the Member States concerned (see, for example, the case of the excessive Hungarian deficit);
  • that the system known as reverse qualified majority voting is introduced for all decisions taken in the framework of the excessive-deficit and imbalance procedures;
  • that more stringent surveillance of the five headline objectives and the integrated guidelines agreed in the framework of the Europe 2020 strategy are implemented; to this end, the undertakings made in the Member States’ National Reform Programmes must be made binding and must also be incorporated into the macroeconomic surveillance carried out by the European Commission; moreover, as part of the 2014 update of the Broad Economic Policy Guidelines, the European economy must be refocused on a sustainability strategy in line with the Green New Deal proposals;
  • that the preparatory work of the European Commission on the conditions for financial aid from the European Stabilisation Mechanism (ESM) is performed under the authority of the Commissioner for Economic and Financial Affairs and is subject to compliance with the European requirements arising from all of the governance and surveillance procedures;
  • that Council decisions in the frameworks of the European Seminar and the excessive-deficit and imbalance procedures are taken in public.

5.      European rather than intergovernmental crisis resolution

The crisis has also shown that the EU had to act, even though the European institutions did not have the legal powers or the resources to take their own action. This is why the EU established the EFSF and the ESM, structures activated by national decisions and fed by national resources and above all, but quite logically, nationally controlled.


We want these structures to be made European by the following means:


  • the conditions for ESM aid should be aligned with the agreed requirements and arrangements that already apply to the European Semester and to the Stability and Growth Pact;
  • the ESM should, in the medium term, be incorporated into the European Treaties and governed by the Community method of decision-making and developed into a genuine European monetary fund.

6.      EU 27+1, EU-25+1 and EU-17: ‘No’ to a two-speed Europe

We stand by the principle of European integration, meaning all Member States together. As in the past, however, it may be necessary to develop different speeds in individual cases. That has and must have nothing to do with the blunt demand for a core Union of the 17 countries that have adopted the euro, which poses the risk of undermining the historic success of eastward enlargement and creating a two-class Union. The differentiation model must therefore be limited from the outset to parts of specific policy areas, as in the distinction in the European Treaties between the 17 eurozone states and the ten which have not yet adopted the euro but are members of the European Economic and Monetary Union and, with the exception of Britain and Denmark, intend to introduce the euro in due course.


Notwithstanding the difference in speeds, we call for adherence to the following principles:


  • the same surveillance and governance processes for all EU Member States, albeit with different sets of surveillance targets if necessary;
  • similar enforcement mechanisms for all EU Member States;
  • decision-making power vested in the European Commission and the European Parliament, similar to the arrangement for enhanced cooperation;
  • a common stage of integration as the proclaimed goal of all EU Member States;
  • special ‘merging lanes’ to enable the countries of the Western Balkans to be integrated into the system of economic governance.

7.      The EU budget: a European investment programme as a way out of the crisis

The budget of the European Union forms the foundations of common European policies. In the present crisis, we must perceive and design the budget more than ever as an investment programme. The EU needs a budget with which it can function and achieve its political objectives. The common budget must support structural reforms in the Member States. The focus of the budget must be centred more sharply than hitherto on the strategic tasks of the EU, namely investments in sustainable competitiveness and green innovations. The EU can no
longer afford to hand out direct windfall payments as it has been doing under the common agricultural policy.


Through its transfer payments, the EU budget makes an important contribution to establishing less disparate living conditions in Europe. It enhances European solidarity. EU funds account for a considerable share of investments in crisis-torn countries. Without a strong EU budget, the principles of cohesion and convergence would be jeopardised.


We want a viable budget for a viable European Union, with:


  • no reduction of the EU financial framework for the period from 2014;
  • a focus on investments in sustainable competiveness and green innovations;
  • funding of part of the budget from genuine Union resources in the form of revenue from EU taxes;
  • a more prominent role for the economic strategy of the EU (currently Europe 2020) and for the Commission’s country-specific recommendations in the allocation of funds;
  • no separate eurozone budget.

8.      Strengthening Social Europe

While firms compete across borders in the internal market, social security often stops at national frontiers. This imbalance between the scope of economic arrangements and that of welfare provision must be redressed. That is the only way to preserve public acceptance of the European Union. There must be European minimum standards and benefits within a prescribed band to ensure that standards of social welfare are not sucked into the vortex of competition for inward investment.


We want a stronger Social Europe, with:


  • more coordination and harmonisation as well as Europe-wide minimum standards of social security;
  • the insertion of a social-progress clause into the European Treaties so as to ensure that social protection and workers’ rights enjoy the same status in the EU as freedom to provide services in the internal market.