John Bruton

Opinions & Ideas

Category: EU (Page 2 of 2)

THE UK VOTES TO LEAVE………WHAT HAPPENS THEN?

The-UK-and-EU-flags-010

Paper prepared by John Bruton, former Taoiseach, on what would happen if the UK votes to leave the EU, the procedures and options available, and the implications for Ireland , the European Union and the UK itself.  

Next June the people of the UK may vote to leave the European Union. At the moment, a narrow majority favours remaining in the EU, but a large group are undecided. That group could swing towards a “leave” position, for a variety of reasons, including what might be temporary EU problems with refugees. However temporary the reasons might be, a decision to leave, once made, would be politically irreversible.

So it would be wise for Ireland to give thought now to how it might react to a decision by UK voters to leave the EU , and how it would play its hand in the subsequent negotiations. A number of scenarios will arise and Ireland needs to identify its red lines in each one of these.

THE NEGOTIATIONS COULD ONLY TAKE 21 MONTHS

The negotiation of a UK withdrawal from the EU will be done under Article 50 of the Lisbon Treaty. It will have to be a quick negotiation because Article 50 contains a two year time limit. In practice the negotiation of withdrawal arrangements will all have to be finished in about 21 months.

From the date that the UK Prime Minister informs the European Council of his/ her decision to implement the referendum decision, the two year time limit starts to run. Assuming a June 2016 Referendum, I calculate the Withdrawal Treaty would have to been negotiated, ratified, and brought into force by July 2018.

So the negotiations themselves between the EU side and the UK side would probably have to be finished at latest by April 2018, to allow time for parliamentary ratifications.

In the event that no agreement had been reached within the deadline, the EU Treaties “would cease to apply” to the UK. The UK would simply be out of the EU, without even a trade agreement.

This would be exceptionally disruptive of the UK economy, and of some, but not all, EU states’ economies. It would be particularly bad for Ireland. Our exports to the UK would be at risk, and the border would be deepened with incalculable consequences.

UNANIMITY OF ALL EU STATES NEED TO EXTEND THE TWO YEAR LIMIT

The two year limit could be extended, but only with the consent of all 27 members of the EU. If the negotiations had become contentious, or if the UK demands bore heavily against the interests of one or two states, one could see the required unanimous consent for an extension of negotiating time being withheld.

This risk of a single refusal to extend time for negotiation, adversely affects the dynamics of the negotiation, from a UK point of view, because the UK has more to lose from failure. It is not inconceivable that a populist government in a member state might hold a time extension for the UK hostage to obtain some other unrelated matter, such as debt relief. A European Parliament in election year could also be a source of uncertainty.

While a time extension would require unanimity, the actual negotiation of the terms of withdrawal would need a “Qualified Majority” within the European Council.

NO GUARANTEE OF PROTECTION OF IRISH INTERESTS IN WITHDRAWAL TREATY

That means that the terms of the Withdrawal Treaty would need to support of 72% of the 27 EU governments, collectively representing at least 65% of the total EU population. Ireland, on its own, could not block a Withdrawal Treaty that contained terms that were against Irish interests. Nor could Ireland guarantee it would be agreed on terms that would adequately protect Ireland’s interests. For example, Ireland could not necessarily prevent passport controls or customs posts on the border in Ireland.

While 72% of EU member state governments must agree to the Treaty terms, 100% of the 27 national parliaments must do so, and ratification could become entangled in General Elections in some states in the interim.

While our fellow EU member states will undoubtedly recognise the Ireland will suffer more than any other EU state from a UK withdrawal, that does not guarantee that Irish interests will be taken into account in all cases. Quid pro Quo will apply, and that could cause difficulties on vital Irish interests on EU issues that have little direct bearing on the UK Withdrawal as such.

Given the short time involved, the UK will not have the option of pursuing a relaxed post referendum exploration of different types of external association with the EU. It will probably have to decide at the outset what form of relationship it is seeking. It will have to choose among options that do not require the EU itself to change its Treaties.

The options were well described in a recent paper by Jean Claude Piris, former legal advisor to the European Council.

OPTION ONE…..UK JOINS THE EUROPEAN ECONOMIC AREA

The simplest would be to join the European Economic Area (EEA), while leaving the EU itself. The EEA allows Iceland, Liechstenstein and Norway to take part in the EU Single Market, but without being in the EU Agricultural, Fisheries, Judicial and Foreign Policies.

In the EEA, the UK would still have to contribute to the EU budget, to apply EU Single Market rules without having the say it now has in them, and to allow free movement of EU migrants to work in the UK on the same terms as locals.

Ireland’s problem with this option would be the departure of the UK from the EU Common Agricultural Policy which would raise issues of fair competitive access for Irish farm produce to the UK market. Management of Atlantic Fisheries would also become more contentious.

OPTION TWO……THE SWISS APPROACH

Less simple, would be for the UK to seek to make tailor made agreements with the EU, like Switzerland has. This negotiation would be a very complex process where tradeoffs would have to be sought between different sectors and national interests. The Swiss model has not worked well from an EU point of view, and one could expect EU negotiators to take an exceptionally tough line if this is what the UK seeks. The issue of access to the UK labour market for EU citizens would certainly be a demand from the EU side in such a negotiation.

In practice, if not in theory, the UK would have to implement EU law in all the areas for which it sought access to the EU market. This would be very problematic from the point of view of the financial services exports from London to Europe.

Once such a deal had been concluded, the EU side would be under pressure to tilt its own internal rules to favour financial service providers in the EU itself. If a system of mutual support and mutual supervision of financial service providers existed within the EU, and the UK was not part of that, there would then be valid grounds for objecting to UK financial service providers benefitting from a market they were not supporting on the same basis as EU providers.

This could hurt London, and Dublin could be a beneficiary. Outside the EU, the UK could do little to stop this. The European Banking Authority would have to leave London and there would be a good case for relocating it in Dublin.

OPTION THREE……A CANADA STYLE AGREEMENT WITH THE EU

Another option would be for UK just to seek a trade agreement with the EU, like Canada has. This option is favoured by some of those who want the UK to leave the EU, so it needs to be studied.

The first thing to say about this is that it would have to be negotiated within the two year time limit applying to a Withdrawal Treaty under Article 50, and would presumably have to be part of the Withdrawal Treaty. The existing Canada Agreement took 6 years to negotiate and dealt with a much less complex relationship than that between the UK and the rest of Europe. It is very hard to see how all this could be done in the time frame. The European Parliament would actively involve itself in the details. The UK would be excluded from the European council discussions on the topic.

A Canada type agreement would not necessarily mean continuing tariff free access to the EU for all UK goods. Some tariffs remain on some Canadian goods for the time being.

It is unlikely that a trade agreement like this, or even a Customs Union of the kind Turkey has with the EU, would allow the UK access to the EU financial services market and financial services are one of the UK’s biggest exports.

It is clear that under a Canada style agreement, the UK would have to comply with EU rules on any goods or services it wanted to export to Ireland or to any other EU member state. The UK would have no say in the framing of these rules, but it would still be bound by them.

Of course, the UK would be free to make its own rules for goods and services sold within the UK, but the downside of that would be that UK firms would then have to operate under two different rule books, one for the UK and another for the EU, thereby adding to their costs and damaging their competitiveness.

Once a Canada style agreement had been made, the UK would be out of the EU and would have no control over any further rules on new topics that the EU might need to make.

The Canada agreement is clear that it does not restrict the EU making “new laws in areas of interest” to it.

If the Canada model was followed there would be a Regulatory Cooperation Forum to cover this sort of thing. In the Canadian model, this Forum would allow

  • “exchange of information and experiences”,
  • “only provide suggestions and make no rules” and
  • “not have decision making powers”.

In other words the UK would be in a worse position than it is as a voting member of the EU.

If , after the UK had withdrawn, the EU deepened its service market further, allowing new access rights across border for service providers within the EU, the UK would miss out on this and would have to negotiate access for its service providers on a case by case basis.

The rights of the 1.8 million UK citizens now living in EU countries would also be less secure. UK citizens, living in Ireland or the continent, would enjoy only what Canadians enjoy.

WHAT WOULD HAPPEN TO EXISTING EU TRADE DEALS, AND TO EU LAWS NOW ON THE UK STATUTE BOOK?

Furthermore, the UK would have to start from scratch negotiating trade agreements with countries all over the world, to replace the trade agreements it now has with all those same countries as a member of the EU.

The UK Parliament would certainly be busy as well, in that it would have to pass new UK laws to replace all the EU regulations that are now part of UK law.

The only alternative to this would be for the UK to decide to leave all the “acquis” of EU rules and regulations, which are now supposedly so objectionable, on the UK statute book, as they are, for a long time to come.

One proponent of UK exit from the EU, Lord Lamont, admitted, in a debate with me recently, that this is what they would have to do.

Leaving the EU, only to leave EU rules on the UK statute book, seems like a lot of trouble to achieve very little!

A SECOND REFERENDUM?

There would be no second referendum on the final terms of any Withdrawal Treaty.

This has been made clear by Chancellor Osborne. That has to be his position because, if there was to be such a referendum, the choice would presumably be either to leave on the basis of the terms of withdrawal Treaty, or stay in on the basis of the EU membership exactly as it is today.

If such a second referendum was formally in prospect, it is hard to see that the EU side would have any incentive at all to offer the UK any concessions at in the Withdrawal Treaty negotiations. They would be mad to do so, because all the concessions would achieve, would be to make withdrawal more attractive.

CONCLUSION

I believe that the architects of the UK’s renegotiation/referendum strategy did not adequately consider how hazardous the voyage is, on which they have so casually embarked. They may have overestimated the EU’s political capacity to devise yet another special deal for the UK.

Ireland, for its part, will have to adopt a very tough, deliberate, and multifaceted negotiating strategy, as long as this avoidable uncertainty prevails.

A REFLECTION ON SOME OF THE CHALLENDES THE EUROPEAN UNION MUST MEET TODAY

We are in  a  time of war, war not in Europe itself, but close enough to Europe to have led to massive outflows of refugees across borders and into Europe. I heard this described at the EPP Congress in Madrid as the “most serious crisis for the European Union since its creation”.  This is not an exaggeration.
 
This refugee crisis is on a scale unprecedented since the Second World War and the Spanish Civil war, because this is a war, in Syria and Iraq, of a ferocity and intensity not seen since then 300,000 people have been killed in the Syrian War.
 
Most of these people are not coming to Europe for economic reasons, or because they are on a mission of any kind, but because they are in fear of their lives. They are seeking refuge. They are the human embodiment of the price of war.
 
Their plight is a human manifestation of what the voluntary European Union was created to avoid in Europe itself …war.
 
UNITY OF SOME KIND IN EUROPE HAS BEEN THE RULE, NOT THE EXCEPTION OVER THE PAST 2500 YEARS
 
If the EU is facing its most serious crisis ever, it is important that we keep a sense of historical perspective. Only thus can we realise how much is at stake.
 
Over the past 2500 years, Europe has tried various methods to create internal security on this continent. The idea of European political unity of some kind is not something new.
 
It was achieved, initially by force, in the form of the original Roman Empire. Because it was created by force, its unity also had to be maintained, from time to time, by force.
 
When it came to an end there was a dramatic collapse in living conditions, because Roman money, as a continent wide means of exchange,  and access to silver to make it, was lost. Living standards in Britain, for example, fell dramatically in the 5th Century AD. There are lessons in this story for the 21st century.
 
Later, from the Middle Ages up to the Reformation, there was a form of unity in Europe when, apart from his religious role, the Pope exercised, without the use of military sanctions, a role of arbiter between European states, analogous to that of the European Court of Justice, combined with elements of that of  the United Nations. 
 
Even after the Reformation and the Thirty Years War, a form of unity in part of central Europe persisted in the continuance of the Holy Roman Empire, until, after 100 years,  that was dissolved by Napoleon, who attempted to impose his own form of secular European unity by force of arms. 
 
THE SHORT,  AND BLOODY,  ERA OF NATIONAL SOVEREIGNTY
 
When Napoleon failed at Waterloo in 1815, Europe entered the era on nation states, supposedly based on absolute national sovereignty, and the balance of power. That era ended, after a mere 150 years, in the holocaust of two world wars, the last of which was preceded by an economic crash and the collapse of democracy across the continent.
 
THE RETURN TO UNITY AS THE GOAL
 
In response to that failure, something entirely new was attempted, a union of European states held together not by military force, or even by  religious sanction, but by a free and voluntary pooling of sovereignty, based on freely agreed rules. That in the European Union of today.
 
There is much to criticise about the EU, and I will voice some myself this morning, but we should not lose sight of the bigger picture.
 
The Union has attracted a stream of new member states, starting with 6, it is now has 28.  Other  Federal Unions and Confederations, in other parts of the world, have not had that experience.
 
It has created  a single market of 500 million consumers, although some barriers still remain. 
 
ANOTHER ECONOMIC CRISIS…BUT NO RETURN TO PROTECTIONISM, DICTATORSHIP OR WAR AS IN THE 1930’S
 
The EU has come through an economic collapse in Europe, similar to the one that occurred in the 1930’s, but , in contrast to the 1930’s democracy has been preserved in Europe, protectionism and competitive devaluation have been avoided, and, most importantly, European states are still at peace with one another. 
 
AN UNPRECEDENTED, AND UNEXPECTED, REFUGEE CRISIS
 
Now, just as it has begun to put in place a banking union to underpin its currency, and  fiscal rules to ensure that this generation does not rob the next by excess borrowing, it now faces a challenge for which it seems quite unprepared, a flood of refugees fleeing war in their own countries– Syria, Iraq, Afghanistan and Eritrea— and impossible living conditions in the countries in which they originally sought refuge—-Lebanon, Jordan and Turkey—-who have so many refugees they cannot cope with them. 70% of Turks say the 20 million Syrians in their midst should go home
 
In an ideal world, one would say that this refugee crisis is a global one and all the countries of the world should come together to receive them on a shared basis.  But this is not going to happen. They are heading for Europe.
 
Controls on the movement of people across Europe’s external borders, notably between Greece and Turkey, have broken down. As a result of that failure, barriers are now being re erected between countries within the EU, undermining one of the freedoms on which the EU is based, freedom of movement of people.
 
If this persists, one could see it leading to interference with the freedom to move goods across Europe too.  This is an existential challenge.
 
But a pooling of sovereignty can only work if states are able and willing to exercise the sovereign powers they have, one of which is controlling their portion of the EU,’s external border. So the next step will be a major EU border force, and EU reception centres where those who qualify as refugees can be separated from those who do not and the latter sent home.
 
Those who are refugees will need to be shared among all 28 EU states, which will not be easy as living standards vary within the EU and refugees themselves will  all want to go to the more prosperous states. That said, I believe a majority of them will want to go home to their own countries if peace can be restored.
 
TOO SLOW APPLYING THE LESSONS OF THE FINANCIAL CRISIS
 
Meanwhile the EU is moving too slowly in applying the lessons of the financial crisis. Most money in use is not coins or notes, but bank credit of one kind or another. So a currency union without a banking union never made sense.
 
We have some elements of a banking union now, a single supervisor for most European Bank and a common EU rule for winding up banks. But these have not been tested yet. That test will come when the EU has to close down a bank in a member state, imposing losses on shareholders bond holders and even customers. Will the EU authorities have the political capital to do that?
 
It will be particularly hard to do because Germany has resisted the idea of a common euro are wide deposit insurance system which would spread the losses. The burden will fall solely on the country in which the bank is being closed down. That is not politically viable….an EU institution closing down a bank, which it had supervised,  in a state and that state alone bearing the depositor insurance costs. 
 
There also may be problems with the Fiscal Rules designed to reduce the debt levels of EU states. These debts are just about bearable now, but if interest rates returned to normal levels, what would happen. For example, the proposed Italian budget for next year, which should be reducing the deficit, is actually increasing it. That may make sense in the context of Italian politics, but it undermines the rules, in the same way that France and Germany undermined the rules 10 years ago.
 
Europe does not need to create a complete political or economic union to solve these problems. That is politically impossible. But the European Union does needs to come to a shared pragmatic understanding on all of these problems, and think out a long term plan that serves the interests  of a very diverse group of countries in a fair and speedy way.
 
MEANWHILE THE EU MUST DEAL WITH THE UK PROBLEM
 
At a time when the EU is grappling with its own existential issues, it has the deal with one member state which wants to reconsider whether it should be in the EU at all or not.  I will not say much about the details of the UK case, and will just make a few brief points.
 
At a time when Polish and Baltic state populations are being asked to accept refugees to relieve the pressure on Italy, Greece and Germany, it will not be easy to persuade them that their citizens should have less  in work social benefits in Britain, when Britain is exempt from taking any refugees
 
If Britain wants to be exempt from paying any of the costs of future EU banking failures, it is hard to grant it a veto over rules that might be designed to prevent such failures.
 
On the other hand, British demands for a speedy conclusion of the TTIP agreement with the US, and for a completion of, the  long delayed,  EU single Digital and Services markets, are a big opportunity for Europe. They should be grasped with both hands.
 
 
 
 

WILL EUROPE ALLOW A BANKRUPT UKRAINE TO FALL BACK UNDER RUSSIAN DOMINATION?

Ukraine is on the brink of financial collapse.

It is not able to meet interest payments it is due to make this week. Its GDP fell by 6.8% last year and is liable to fall by an even greater extent this year. Meanwhile it is having to defend itself against a neighbour which guaranteed its frontiers as recently as 1994.

Instead of stepping forward to help Ukraine financially, the EU and the United States are both leaving the job to the IMF. The IMF is offering Ukraine $40 billion whereas the EU says it can only manage $2 billion.

The European Union has already extended forty times as much credit to Greece, as it has given to Ukraine, whose population is four times that of Greece. If this ratio reflects the EU’s real priority, it is unbalanced. 

GDP per head in Greece is, after all, about three times that of Ukraine. Like Greece, Ukraine has a lot to do to create a functioning and efficient legal and administrative system, stamp out corruption, and collect taxes fully and fairly .But Ukraine is having to do this while  recovering  from the effects of a Communist system which was imposed on it from outside since 1919, whereas Greece has been the democratic shaper of its own policies for many years.

Greece is , of course, in the EU and the euro, and Ukraine is not, but both are in Europe, and both aspire to a democratic European future.

Furthermore Ukraine had it borders guaranteed in the Budapest declaration of 1994 by EU countries, including Britain and France, and by Russia and the US,  in return for Ukraine giving up nuclear weapons. 

Despite this, Ukraine was invaded, and portion of its territory annexed, last year by one of its guarantors, Russia, because Ukraine wanted to make a modest cooperation agreement with the EU.

Notwithstanding that, the EU is now being stingy in helping Ukraine in its financial crisis, and is fixated instead on the drama in Athens.

Ukrainians believe they have a European destiny, and are prepared to die for it.

The Russian leadership, on the other hand, believes that Ukraine, with its Russian speaking minority, is in their sphere of influence, and sees a link up of Ukraine with the EU as a form of foreign interference in their backyard. One would have to respond that this view is not in accord with Russia’s guarantee to Ukraine of 1994, nor with international law.

The entire post World War Two European security order rests on acceptance of international law.

Similarly, any prospect of voluntary nuclear disarmament in future must depend on solemn obligations, like the Budapest commitment given to Ukraine in 1994, being seen to be honoured.

In Ukraine’s case, all the EU is expected to do is provide financial help.

But if Ukraine falls, the Russian threat may move on to other countries, with Russian speaking minorities, like Latvia and Estonia, which are NATO members  and  to whom most EU countries (not Ireland) have a solemn Treaty based obligation to provide military help if their  territory is threatened.

Meanwhile the Greek government, while looking for new loans and debt write offs from the EU, is ostentatiously aligning itself to the very country that has invaded Ukraine,  Russia. It is looking for more credit from the EU, without implementing reforms that would generate the long term growth, which would enable those loans to be repaid.

In contrast, the new Ukrainian government is implementing painful reforms to increase the growth potential of its economy, for example by eliminating inefficient consumption subsidies, which have quadrupled gas prices paid by Ukrainian households. Parts of its reform programme are being delayed in its parliament by opposition figures, like Julia Timoshenko, once the darling of the western media and still part of the EPP family to which Fine Gael and the German CDU belong.

Ukraine’s financial situation is now so critical that President Putin believes that all he has to do is sit and wait, and Ukraine will collapse back into Russian control simply because, in the absence of large western credits, it will run out of money. 

If this happens, and if the EU has continues to do little or nothing to stop it beyond talk, that will a huge blow to confidence in the EU’s ability to defend its values and help its friends.  Other countries on Russia’s perimeter will feel they too will have to make a deal with Putin, rather than rely on the EU. 

In Ukraine’s case, European countries do not have a Treaty obligation to give military help . But, in their own interests, they should give generous financial help now, to ensure that a success in Ukraine does not embolden Russia to undermine countries like Latvia and Estonia, which also have Russian speaking minorities, but where most European countries do have a Treaty based military obligations to help.

When questioned in a recent Pew poll, as to whether they would be willing to use force to defend another neighbouring NATO country, that found itself in conflict with Russia, 51% of Italians, 53% of French people and 58% of Germans answered that they would not.

If that frightful dilemma is to be avoided, it would be wise for Europeans to draw the line in Ukraine now, by providing that country with enough financial help to build a properly functioning state, that can pay its way and look after itself, and be capable on its own of resisting intimidation by its big neighbour.


PUTIN IS SPLITTING THE EUROPEAN UNION, AND TEARING UP EUROPE’S POST WAR SECURITY ORDER

Russia’s tactics in Ukraine have torn up the assumptions, on which the relationship between the West and Russia had been based since the end of the Second World War.

Forcible annexations of neighbouring territory, a reality in the 1930’s, are now a reality again, thanks to what has happened in Ukraine.

Power politics and spheres of influence of great powers have replaced international law and respect for sovereignty as the motive forces of European security.

Already, the EU is visibly divided on how to respond, even though international law on this matter is clear.

On the 1 August 1975, the then Irish Taoiseach, Liam Cosgrave was one of the signatories of the Helsinki Final act governing relations between European states. He signed along the United States, all other European countries (except Albania), and the USSR, which at the time encompassed both Russia and Ukraine.
Article one of the Helsinki Final Act said that the signatory states would

“respect each other’s sovereign equality, juridical equality and territorial integrity”,
and that they would refrain from the 

“use of force or the threat of the use of force against the territorial integrity or political independence of any state”.

As a small militarily neutral European state, Ireland has a greater interest, even than has a state which enjoys the comfort of a military alliance, in ensuring that these clear interstate principles are respected.

As Taoiseach, I happened to have been invited to address the Parliamentary Assembly of the Council of Europe on the very day the Assembly was voting to admit the Russian Federation to membership of the Council. I spoke in favour of Russian accession. Russia became a member on 28 February 1996. The Council of Europe is the source of a dense and comprehensive network of treaties on many topics, including human rights. The Council of Europe, and its Treaties, only have meaning to the extent that its members are willing to abide by international law.

The European Union also rests on the foundation of respect for international law. The EU only EXISTS because there is an assumption that international Treaties will be respected in ALL circumstances. The EU has no force to govern its own members beyond the force of international law in the form of EU Treaties.  The European Court of Justice interprets these Treaties and its rulings are accepted by all EU states.

Dividing the EU has been a long standing Russian goal, and President Putin’s aggressive tactics appear to be succeeding in the goal of dividing the EU, in a way that previous Russian efforts have failed.

At one end of the spectrum, countries like Bulgaria, Cyprus, Greece, Spain, Italy and Hungary are relatively accommodative towards what Russia is doing, while others, like Lithuania, Poland, Estonia and Latvia are alarmed and looking for resolute action. The bigger EU states are, painfully and unsuccessfully, trying to balance commercial interests against professed principles
Talks are taking place in Geneva, but one wonders what there is to talk about. The two sides have no assumptions in common, unless of course Russia succeeds in getting the EU to validate what it is doing.

As recently as 1994, EU countries, including Britain and France, reached an international agreement with Russia guaranteeing Ukraine’s frontiers, in return for the non trivial matter of Ukraine abandoning its nuclear weapons, and thereby weakening its deterrent security capacity in an important way. That agreement has now been put in the bin.

It appears to me that the European Union is not only unprepared militarily and economically for what is happening now. It is also unprepared intellectually. Its theory on international relations does not encompass what President Putin is doing.

Putin is moving fast, while Europe is still scratching its head.

If the EU is not to have its policies dictated in the Kremlin, as a result Russian pressure on energy supplies, it needs to make a radical change in its own energy policies.

It needs to build a proper energy union in Europe, independent of Russia, with complete inter connection of its energy distribution grids. That will require a lot of investment, and the diversion of funds from current consumption. 

MAKING THE EUROPEAN UNION MORE DEMOCRATIC………………………………………..

WE NEED AN ELECTION THAT IS TRULY EUROPEAN……….NOT JUST 27 NATIONAL ELECTIONS FOR EU JOBS

Why is there criticism of lack of democracy in the EU at this  time?
One of the criticisms of the policy guidelines, laid down by the European Commission and Council of Ministers for economic policy in the European Countries, is that the European Union lacks sufficient democratic legitimacy to be making recommendations on things like this. I believe this criticism is exaggerated, but has some underlying validity. 

The guidelines , of course, really do have to be followed, not primarily because they have been recommended by the EU, but simply because lenders in the commercial markets will not lend money otherwise.

Without an EU endorsement, markets nowadays will hesitate to lend to governments, who are consistently  spending more than they are raising in taxes, or who are maintaining economic structures that inhibit the economic growth. 
Economic growth is needed to raise tax revenues, and thereby to sustain better public services. But economic growth requires the removal of rigidities in the market for jobs and services that may prevent change.

Constant change is actually essential to economic growth. Change is often painful, and evokes anger. Because its advice often advocates painful change, the EU is being criticised…and also accused of being undemocratic. 
But the truth is that, even if the EU, and the euro, had never existed, European governments with budget deficits, ageing populations, and rigid economic structures, would be facing painful change at this time, anyway. Neither the EU, nor membership of the euro, obliged the governments in difficulty to adopt the policies that have led to their present difficulties.
That said, there is a need for more democracy in the EU, so that the public will be willing to assess the legitimacy its guidelines on their merits.

Democratic legitimacy exists when the voters feel that, if they are not satisfied with what their government is doing, they can peacefully remove it from office.

Europeans feel they can do that with their national government, and  with their city or local government. But they do not feel they can vote any part of the EU government out of office
That should change.

What should be done to make the European Union more democratic?

There should, in future, be three, rather than the present  two, sources of democratic legitimacy in the EU.

  1. The existing democratic mandate that member state governments,  who make EU policy in the Council of Ministers of the EU,  already enjoy from their parliaments and people
  2. The  existing democratic mandate  that the European Parliament  has from  the  national constituencies, in which it members are  elected.  I believe this could be improved if some MEPS were also elected from an EU wide constituency
  3. A new EU wide democratic mandate, that a directly elected President of the Commission would have to win from the entire unified electorate of the EU. The President should be elected using the alternative vote system of Proportional Representation, whereby  voters would indicate an order of preference among candidates, and the votes of candidates, with lower numbers of first preferences, would be redistributed  according to the second preferences, until one  remaining candidate had achieved 50%. In this electoral system the President of the Commission would have to be acceptable, on a preference basis, to a majority of the EU electorate .In contrast, if a “first past the post” electoral system was used, the EU could find itself with a President, who might come from the  biggest party, but who still  had the support of a minority of the electorate. That would be unstable.

This new third element would create a vehicle whereby Europeans, voting all over Europe on the same day, could vote into or out of office, an office holder who could attempt to change the trajectory of EU policy. That would greatly enhance the democratic legitimacy of the EU. It would bring the EU closer to the people. It would bring the same degree of democracy to the EU, that Europeans expect at national and local level.

We must first create a truly European electorate, if we are to have the level of common identification with one another across national boundaries, which would be essential if there is to be public support for more federal integration. 

Elites in Brussels need to understand that electorates must first “think European” before they will happily pool more powers, especially on budgetary matters, They must trust one another, regardless of nationality.

For this reason I believe election of the President of the Commission, directly by the people of Europe themselves, is infinitely  preferable to an election of the President of the Commission by the European Parliament.

A President of the Commission, who had been elected by the European Parliament, and who could be removed by the Parliament (as happened in the Santer case), and  who has no power to  dissolve Parliament in the event of a policy clash(as most national Prime Ministers can), would be too weak, and would lack the necessary independence. He or she would be subject to too much short term parliamentary pressure. We would be introducing, at European level, the sort of weak governance that caused such difficulty for the Third and Fourth French Republics.

I believe that a  separation of powers is an important safeguard in a Union as complex, and large, as the EU. 

The direct election of the President of the Commission by the people, rather than by the European Parliament, would preserve the separation of powers, on the basis of which the EU has operated successfully since its foundation. 
Some suggest that the EU could gain greater democratic legitimacy, if the 27 national parliaments became more involved in EU policy making. One suggestion is to set up a joint committee of MEPs and national parliamentarians, who could question EU Commissioners and the European Central Bank.

This might do some good, but  it would not close the gap between national electorates and the EU decision makers. National parliaments are national entities with national concerns. That is their . It is not a European role. In any event, national parliaments are themselves facing criticism for the performance of their national roles, and giving them a new set of European responsibilities will not necessarily reassure national electorates about Europe.

Furthermore, national parliaments, subject to party discipline,  will tend to follow the policy line of the national governments , and  thus are unlikely to add many new, or different, inputs from those put forward in the Council by national Ministers. 
election of the President of the Commission does raise a The direct question about the quasi judicial functions that the Commission performs, like Competition policy, enforcement of EU laws, and the   guardianship of the Treaties, which many believe should not be subject to electoral pressures .  A solution would be to hive off these quasi judicial responsibilities of the Commission to an independent body, with a level of independence similar to that now enjoyed by the ECB, which would not be subject to direct electoral pressures.

I  do not  favour merging the roles of the President of the Council, and that of President of the Commission, but only one of them(The President of the Commission) should be directly elected. This would establish a natural hierarchy between them, and avoid the embarrassment of sending two Presidents to the G8.

Ideally, I would favour a smaller Commission, but I do not see how it will come about in practical politics, because smaller countries will not agree to amend the EU Treaties to give up ”their” Commissioner. A solution may be to enhance substantially the role of the vice Presidents, and attribute some of the “surplus” Commissioners to the External Action service, to handle EU relations with particular parts or regions of the world. 

In addition to the EU electorate, acting as a single body, electing the President of the Commission,10% of MEPs should be elected from in a single constituency of all of the EU. 
The question of a single EU wide constituency for a proportion of the European Parliament was an issue that the Convention on the Future of Europe was asked to consider, but it did not do so.
I believe the EU will evolve a true common foreign policy only after it has evolved a common defence policy, and I believe that will happen, very gradually, and only because of financial necessity, not  because of political idealism.

But it will never be sustainable to have a common foreign and defence policy until we, as Europeans, feel we have common interests, and common understandings, among ourselves. 
That has not come about yet. I believe that it can be brought about only if we have elections that are truly European, rather than mere national elections, to European jobs.

GERMANY BASHING IS BESIDE THE POINT……….. IT IS TIME TO FACE THE REAL CHOICES

We read that there is a severe outbreak of anti German feeling in Greece.Under the second EU/IMF bailout, Greece is being lent extra money  at interest rates  far below those at which it could borrow commercially, and in the meantime a portion of its existing debts are being written off. 
But  Germany is being blamed for the  unwillingness of the EU and the IMF  to sign off on this  second bailout , without , what some Greeks see as,  humiliatingly detailed assurances that
  • the money will be used properly ,
  • Greece will adopt specified policies to cut back state spending and raise taxes and that it will
  •  liberalise its economy, so that it can grow fast enough to be able to repay the extra money it is now to be lent.

The trouble is that Greece has a poor record in presenting honest accounts, and in implementing in practice, changes it has agreed to in principle. The extra assurances are being sought so that more good money is not poured down a black hole along with the debts that are now being partially written off.
Without this loan, Greece would default and it would leave the euro.
In fact, what Germany is really doing is defending the interests of savers, including Greek savers, from what would happen, if Greece defaulted and left the euro. If Greece left the euro, its banks would collapse, and Greeks would see their savings, whether   in the form of bank deposit accounts, life assurance policies, or claims on pension funds, disappear.

THE CHOICE FOR GREECE IS BETWEEN PLANNED AUSTERITY, AND SUDDEN INDISCRIMINATE, AUSTERITY

 
Some argue that “austerity” is a mistake, because the cuts in spending and tax increases dampen confidence so much that the economy stops growing. In the short term, this is true.  But those who criticise on that basis,  have no realistic alternatives to offer.
Where can Greece get the money on better terms than it is getting from the EU/IMF?  
 Nowhere.
There really is no Keynesian alternative for Greece.   The Greek economy is too elderly, too inward looking and too riddled with restrictive practices, to benefit from a Keynesian stimulus, even if someone could be found to finance it. Greece must modernise first. The EU/IMF programme gives it some breathing space (perhaps too little) in which to do that.
Keynesian economics might have been relevant in the  1930s, when the European  population was much younger and could respond to an economic stimulus.  Europeans today are much older, many are retired, and their priority is saving for their old age, rather than going out shopping in response to a boost in government spending. It is not going to get easier. The age dependency ratio in the EU in 2007 was  25%, by 2050 it will be 50% !   What people are looking for now, is stability.

 Greece faces an alternative of two forms of austerity
  • austerity through  planned  cuts and tax increases under the EU/IMF programme or
  • austerity through indiscriminate inflation, of the kind that would  occur, if Greece  left the euro and devalued.
One of Greece’s problems is that it finds it very difficult to reduce wages, which is one of the many things it needs to do if it is to make its exports more competitive. Wage setting is highly regulated in Greece. That is why some favour Greece leaving the euro and allowing devaluation and inflation to cut the real value of Greek wages, and thus  regain competitiveness.  Inflation is the politically easy way to impose wage cuts, but the effect on living standards is at least as bad as cutting the wage rate, and much harder to control.
 But the price of this inflation/devaluation option would be high.  If Greece left the euro, its banks would collapse and the savings of ordinary Greeks, who were patriotic enough to leave their money in Greek banks, would disappear.  Inflation is hard to keep in check once it starts, and Greece also lacks big export industries ready to boost exports quickly on the back of a devaluation.

THE REAL POLITICAL DIVIDE………SAVERS VERSUS BORROWERS
 
It is true that current EU policies are favouring savers over borrowers.    This is so because the ECB, unlike the US Federal Reserve and the Bank of England, is not willing to engage in “quantitative easing” ,printing money indiscriminately, to revive the economy temporarily.
ECB refuses to print euros without limit, and refuses to use them to buy Greek bonds without conditions. It refuses to do so because that would lead to inflation, and to a devaluation of euro. The more euros that are printed the less the euro will be worth.  That, of course, might suit borrowers, because the euros they would using to pay back their debts at the end of their loan, would then be worth less,  than the euros they borrowed in the first place.
 
But that approach would be bad for savers, who would see the purchasing power of their savings disappear.
 
The real political divide in our societies today, is not between Greeks and Germans, or between the profligate Mediterranean nations and the thrifty northerners.
It is between savers, who do not want their savings devalued or confiscated, and borrowers, who would like to be allowed to pay back less than they owe.

“ORDINARY PEOPLE”, SOMETIMES THE SAME PEOPLE, ARE ON BOTH SIDES OF THIS DIVIDE

But if borrowers pay back less than they owe, someone somewhere else has to take the hit.
If  borrowers are helped by having  their debts being  written off, or having  their debts  are  devalued by inflation, someone else will lose.
Who would lose? 

  1. The losers would include taxpayers, who now own  many of the banks, and who would  see the value of those banks go down
  2. Other losers would be pension funds and insurance companies who own bank shares, and the people who rely on these pension funds and insurance companies to pay their pensions, or insure them against risk.
  3. Yet other losers would be   the people who have deposits in banks, who would see the value of those deposits reduced by inflation, and who could even lose those deposits if the bank collapsed. 
The challenge we face is that of devising an economic policy that acknowledges that there are ”ordinary” decent  people on both sides of this divide.
We also need to acknowledge that no one will be willing to lend any European Governments money any more unless they face up to realities about the cost of ageing societies that will  grow steadily everywhere over the next twenty years.
Greeks bashing Germans, or all of us bashing bankers, may give emotional satisfaction, but it will not pay our bills.
 
We need to think things through , rather than emote. We  need to strike a balance between debt relief, and protecting the savings we need to prepare ourselves for  a time when, instead of four,  there   will only two people at work,   for every one  that is  one too old to work

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