John Bruton

Opinions & Ideas

Category: European Commission

THE EU IS ALREADY DEMOCRATIC…..TWO WAYS IN WHICH THAT CAN BE MADE MORE VISIBLE

The-UK-and-EU-flags-010One of the recurring themes in the debate about UK membership on the EU is the (false) claim that the EU is not democratic.

All EU legislation has to be passed by a democratically elected European Parliament and also by a Council of Ministers who represent the democratically elected governments of the 28 EU countries.

It is true that the members of the European Commission are not democratically elected by the people, but their names must be proposed by democratically elected governments of the 28 countries, and the Commission as a whole must be approved by the democratically elected European Parliament.

In many countries, Ministers serve in government who have not, as individuals, been elected directly. Their democratic mandate comes from the elected government of which they are part.

This is not to say the there is no room to improve the democratic legitimacy of the EU, and of its policies. I believe the EU could respond to the UK referendum by further enhancing EU wide democracy.

I make two suggestions to improve the visibility of the democratic character of the EU, and create a genuinely European democratic debate, rather than 28 separate national debates about EU matters

  • The President of the European Commission should be directly elected in a two round election by the entire people of the EU, at the same time as the European Parliament Elections
  • It should be possible for the National Parliament of the 28 to come together to request that the Commission put forward a proposal on a particular matter. National Parliaments( if a minimum number agree) already have a right to petition to delay a piece of EU legislation, so why not give them a positive right to seek the promotion of a piece of legislation (if they can obtain a similar level of support across a number of countries).

ARE EUROPES LEADERS REALLY SERIOUS ABOUT PROMOTING GROWTH FRIENDLY REFORMS?

IS GERMANY PRACTISING WHAT IT PREACHES?

In June 2011, the European Commission published detailed “country specific” recommendations for structural reforms by member states to help them boost economic growth.  Similar recommendations were made in 2012, and they were stated to be designed to be implemented “within 12 to 18 months”.

The recommendations covered three areas

1.Fiscal policies,
2.Reforms to reduce imbalances between  exports and imports (macro economic imbalances) and
3.Other growth friendly reforms in labour markets, product markets etc

These recommendations were subsequently examined, and endorsed, by the 27 Heads of Government of the EU

The services of the European Parliament have just released a detailed analysis of how well European leaders and their governments have done in implementing their own recommendations . The analysis does not cover countries that were under Economic Adjustment programmes in the period (ie. Ireland, Portugal and Greece).

The findings show that EU leaders are not taking their own declarations seriously.

Of the 2011 and 2012 recommendations, only 18% have been fully implemented, 39% are being “seriously worked on”, and a very large proportion…. 43% have not been acted upon at all!

The worst performers are Slovenia and Belgium where 64%, and 63%, respectively of the recommendations have been ignored.

The best performer , by this measure ,is Italy, where only 17% of the recommendations addressed to it have not been acted upon. 

In terms of getting the job done completely, the best performer is Denmark which has fully implemented 30% of the recommendations addressed to it, as against an average of 18% for the rest of the EU countries surveyed.

Germany, which regularly preaches structural reform to other countries in the EU, has a bad record in implementing the recommendations addressed to it, and which Chancellor Merkel would have endorsed at the 2011 and 2012 EU Summits.

Nothing has been done so far on 53% of the recommendations addressed to Germany in 2011 and 2012.

For example, the survey by the secretariat of the European Parliament shows that, Germany has failed to do anything on recommendations addressed to it on

  1. Ensuring that the Lander implement EU budget rules
  2. Improving the cost effectiveness of long term care restructuring the Landesbanken
  3. Removing tax wedges that discourage work
  4. Removing entry barriers to professions and crafts (surprising given Germany’s looming labour shortage)
  5. Stimulating competition in the service sector
  6. Promoting cross border energy supply networks( a vital issue now that Russian supplies are so unreliable)


These failures must prompt fairly profound questions.

Are the Commission recommendations the right ones, and if not, why did the Heads of Government endorse them?

If the Heads of Government believe these are the right recommendations, why are they failing so miserably to get their own Ministers (who they can hire and fire) to implement them?

Given that economic growth is so important, and that Europe’s best brains have  been applied to producing these recommendations, huge gaps like this, between what its leaders do, and what they say, brings them, and EU itself, into disrepute. 

THE CASE FOR JEAN CLAUDE JUNCKER

It is difficult to understand why David Cameron has decided to expend so much of the UK’s limited political capital in the EU on a bid to stop Jean Claude Juncker becoming President of the European Commission. The timing of his campaign, at this late stage when in the European Parliament  elections are over, is disastrous. 

All the major political parties represented in the European Parliament selected their proposed lead candidates for President of the Commission,  ahead of that election, on the supposition that the lead candidate selected by the party that subsequently won the largest number of seats in the Parliament, would be the one who would be supported for President of the Commission. 

The Heads of almost all EU Governments participated in the selection process of their European party’s candidate. For example, Angela Merkel took part in the selection of Juncker as the EPP candidate at the EPP Convention in Dublin a few months ago.  
If the Heads of Government, who are almost all the leaders of their national parties, had wanted to stop thisprocess, they could have done so……several months ago.  They did not do so. It is too late now. 

They let the campaign go ahead on the basis that the lead candidate was to be the preferred nominee for President of the Commission. They allowed TV debates between the lead candidates to take place, on the assumption that each were the candidates for Commission President.

Personally, I would have preferred if the President was selected by a direct vote of the European people, rather than by this convoluted and indirect method. This would have been better for the independence of the Commission, from both the Parliament and Heads of Government.   But that battle was lost long ago.

I fought for direct election in the Convention, but got no support from any major figure except George Papandreou, then Greek Foreign Minister. Although they constantly complain that the EU is “undemocratic”, no British representative gave direct election any support in the Convention.

David Cameron should remember that this is the third time that a British Government has tried, in a very personalised way, to veto candidates for President of the Commission, the late Jean Luc Dehaene and Guy Verhofstadt were both victims of previous British vetoes, simply because they were people of strong pro European conviction. 

David Cameron’s foolish confrontational tactics will be less successful this time, because now the issue will be decided by qualified majority rather than unanimity, and a veto by a single country is no longer possible.

Cameron says he want to keep Britain in the EU, but his tactics are so divisive that, if he wins it will be at the price of huge ill will in Europe, or if he loses,  it will be at the price of increased anti EU sentiment in his own party and in British society more widely. Either way, he is serving neither his own, his party’s, or his country’s interests.

THE LATEST VERSION OF THE EURO AREA FISCAL COMPACT-WILL IT BE ENOUGH TO SATISFY THE ECB TO DEPLOY THE NECESSARY FIREPOWER?

On the basis of the  agreement at the EU Summit on 9 December, the EU is working out the details of the proposed fiscal compact which will be incorporated in a Treaty between EU members, except the UK. The latest version has been published on the Open Europe website and is herewith.

My own view is that something solemn and strong, along these lines, is needed if sovereign borrowing by European states is to regain the confidence of the markets. This a vital national interest for all euro area member states, notably for Ireland. So the Treaty must  pass. But we must also make sure it is as well designed as possible.

A few questions need to be answered.

1.)    Will this Treaty need to be put to a Referendum in Ireland?

When Ireland joined the United Nations and the IMF, no referendum was needed, even though in the former case Ireland theoretically could have been, or be,   committed militarily,  in  defined circumstances, which have not  in fact yet arisen.
One of the provisions in the Treaty , would commit Ireland to introduce a balanced budget rule into its legal system in a  binding and permanent way, preferably in the national constitution.
 A constitutional amendment would definitely require a referendum. But an amendment to the Central Fund Act or some other piece of “permanent” financial legislation, to impose a balanced budget policy, would not require a  referendum.
I wonder if  that would be sufficient?

2.)    How easy will it be to interpret is the proposed compact?

If the wording of the proposed Treaty is to subject to adjudication by the European Court of Justice and, in Ireland’s case, by the Irish Supreme Court it needs to be very clear .

The Treaty would allow a country to have a structural deficit of up to 0.5% of GDP , “in terms of the country specific medium  term objective” for that country. That objective would presumably be set by the Commission.

 Interpreting administrative objectives set by the Commission would be difficult for Courts.

Furthermore, the concept of the structural deficit itself is quite elastic. It depends on the point a country is on in its economic cycle. But there is often controversy even among top economists about when an economic cycle began or ended, and even about whether there is such a thing at all. This will bring judges into very difficult areas in which they have little expertise.
There is also a question about how binding these rules will be. A rule in Ireland’s constitution is much more  severe, than rules in constitutions in other countries, where the constitution is  seen as guidance, rather than absolutely binding regardless of circumstances


3.)    Does the compact do everything that needs to be done?

My own sense is that there is not enough in the draft Treaty about how Europe is to regain competitiveness and market share.
 This means bringing downs costs, in the way Germany did in the 1990s and Latvia did more recently. Fiscal austerity is necessary, but not sufficient, to achieve this.
Austerity is not an end in itself. It is only a means to an end, and that end needs to be more credibly and clearly defined by the Heads of Government of the Euro area.

THE EURO HAS BEEN 40 YEARS IN PREPARATION……AND THE PRESENT PROBLEMS WERE FORESEEN

This week I am spending a few days in London, before coming home to vote in the Irish General Election.
In London, I have been invited to give some lectures to students in the London School of Economics about the euro, which is the centre piece of the project to achieve Economic and Monetary Union in the  EU. To prepare my presentations for the students, I have done some research on  the history of the  project that culminated in the  euro, the common currency  of the EU.  Some of our mistakes were foreseen long ago.
The first serious outline  of a plan for a  single  currency for Europe was done as  far back as in  1971, in a paper prepared, at the request of  the  other five heads of Government of the   Common Market, by the then Luxembourg Prime Minister, Pierre Werner.
 Pierre Werner’s report was prepared  before  either Britain or Ireland joined  the  Common Market, but we were  both put on notice  by his report that this  was the direction the  body we were joining  was heading,  and we were free not to join at all if we did not  want to go in the direction of a single currency, and accept what it entailed.
The Werner Report was quite specific that being part of the euro currency would mean   EU interference in domestic economic policy making.  Here is an extract from the Report, written  back in  1971
“To facilitate the harmonization of budget policies, searching comparisons will be made of the budgets of the Member States from both quantitative and qualitative points of view. From the  quantitative point of view the comparison will embrace the total of the public budgets, including local authorities and social security.  “
It  was clear that EU scrutiny would extend beyond narrow  public finance, to include  impacts on the broader economy. It said
“It will be necessary to evaluate the whole of the fiscal pressure and the weight of public expenditure in the different countries of the Community and the effects that public receipts and expenditure have on global internal demand and on monetary stability. It will also be necessary to devise a method of calculation enabling an assessment to be made of the impulses that the whole of the public budgets impart to the economy”
It is quite clear from this extract that the framers of the project foresaw the sort of  that  arose  thirty five years later, namely  
Some members running excessive underlying budget deficits and building up unsustainable public debts( as in the case of Greece),
 and others  over stimulating internal demand through excessive private credit, and thus destroying their competitiveness  within the single  currency zone( as in the case  of Ireland).
 But when the Euro eventually came into being , the EU institutions did not  really try very  hard to harmonise budgetary policies , nor  did they  try seriously to control  the “impulses to the whole economy” either.
A few token efforts were made, but when these encountered political resistance, there was no effective follow  up.  It was as if we wanted the benefits of a single  currency, without paying the price. The first countries to break the borrowing rules were  Germany and France, and once they were allowed to get away with it, it  was inevitable we were heading for trouble, because the  basic ground rules, laid down as long ago as 1971, had been ignored and broken with impunity.
In 1989, a second report was prepared with the goal of reviving the project for  Economic  and Monetary Union, which had had to  be shelved because  of the  oil crisis  of the  1970s.  This time the report  was prepared by a group chaired by Commission President, Jacques Delors , and  on which Ireland  was represented by Maurice Doyle.
This Delors report  was even more specific in  envisaging the dangers  that inconsistent economic  policies within the single currency area could give rise to.
It said
“Monetary union without a sufficient degree of convergence of economic policies is unlikely to be durable and could be damaging to the Community. Parallel advancement in economic and monetary integration would be indispensable in order to avoid imbalances.”
It went on to predict exactly what went wrong in Ireland’s case.  Recalling that financial markets are very bad at predicting crises, and  go on lending  long after they should have stopped, it said
 “Experience suggests that market perceptions do not necessarily provide strong and compelling signals and that access to a large capital market may for some time even facilitate the financing of market forces might either be too slow and weak or too sudden and disruptive. Hence countries would have to accept that sharing a common market and a single currency area imposed policy constraints. “
This warning was given in a report co authored by the then  Second  Secretary of the Irish  Department of Finance and future Governor of the   Irish Central  Bank! It would appear that neither institution paid much heed to  this warning in the years between  2000 and 2008.
 It would  also appear that  other member states of the  Euro paid little attention to it either, because I understand  it has been obvious from figures in the statistical appendices to Irish Central Bank  reports since  2003 that big imbalances were building up in the Irish housing and credit markets.
 The European Commission and the Finance Ministers of the Euro area countries could read this data about excessive credit build up, but their reports on the situation in Ireland and Greece were anodyne and circumlocutory. The European Central Bank was not very good at fulfilling its Treaty mandate of coordinating the monetary policies of member states either. 
The truth is that we have, as a result of ignoring the  warnings of Delors and Werner  reports,  facilitated a  European banking crisis, because  by removing  capital controls to facilitate the single currency, we  allowed European  banks to  become totally dependent on one another, so that if one fails, all may fail.
Now at meetings next month,  the  Heads of  the Governments of the European Union  have got to find a European solution to this European banking crisis,  in part by taking seriously the words of Pierre Werner and  Jacques Delors, even if  it is  nearly  forty  years  late!

THE IRISH GENERAL ELECTION, February 25 2011

I have been doing quite a bit of work in the Irish General Election on behalf of the party of which I have been a member since I was 18 years of age, Fine Gael.
As I see it, the election is about how best Ireland can regain its national economic freedom of action. Under the EU/IMF programme, without which our state could not now function, all decisions ,that have a significant economic cost or which depart from the programme agreed with EU/IMF, will have to have the consent of those bodies.
Ireland finds itself in this position because of foolish decisions of Irish banks, of some of their customers , and of those(mostly foreign banks) who lent to them. I believe the responsibility is widely shared, as I outlined in my recent letter to President Barroso of the European Commission, which is published elsewhere on this site. There is a valid argument that the Irish taxpayer is bearing a disproportionate share of what is, in effect , a necessary programme to rescue non Irish as well as Irish banks.
But even if the burden is more fairly distributed, there is still a huge burden that necessarily has to be borne by Irish taxpayers and by recipients of Irish Government services. One way or another, taxes will rise and services will diminish.
The two basic choices voters have to make in the election are
1. Whether to straighten out our finances quickly or slowly, in other words, whether to string the pain out over a long period, or over a shorter one,
2. Whether to elect a Government that will be able to do the job according to a single coherent plan, for which it takes full political responsibility, or whether it is to try to get the finances right on the basis of a compromise between the differing plans of a number of different parties negotiated after the election is over.
On the first point, I favour doing the job quickly rather than slowly. We need to get our economic freedom of action back as quickly as possible. It really is not good for Irish democracy to prolong the period in which we have to get EU/IMF permission to make decisions. In the future, interest rates will go up rather than down. The United States Federal Government has huge deficits which it is doing nothing about. This year it will borrow 1.3 billion dollars on behalf of it 300 million people, whereas EU Government will ONLY borrow 1 trillion dollars on behalf of their 500 million people. The cost of retiring baby boomers will be added to all these liabilities. These factors will combine to make it more expensive for Ireland to go on borrowing. Things are not going to get easier, so the sooner Ireland gets its economic independence back the better.
On the second point, in normal times, I would see little or no difficulty with electing a Dail in which a coalition of two or more parties would be the only way to form a Government. But, naturally, coalition Governments always consist of parties some of whose objectives will conflict , and who remain political rivals. When economic times are difficult, and tough decisions have to be made, that leads to problems when there is a coalition. We saw that in 1987 with the FG/Labour coalition, and again this year with the FF/Green coalition.
This is why I argue that, objectively, a single party Government would be the most effective outcome to this General Election, and the best way to put the country on a path towards regaining its economic independence quickly.
A single party Government could make decisions more quickly and minimise wasteful and expensive delays. It would operate to a single internally consistent programme, rather than on the basis of compromises negotiated under time pressure, in the short period between polling day and the first meeting of the new Dail. With a decisive mandate from the people, it would be best placed to negotiate with the EU and the IMF.
I believe these arguments will resonate with a significant share of votes who would have supported Fianna Fail in previous General Elections, but who are now looking for a change.
Fianna Fail supporters have always valued national economic independence. They have always put great store on patriotism. They have often voted Fianna Fail in the past because they wanted strong and stable, and if possible, single party Government . They did so because they were convinced that was for the good of the country.
Now , their old party, for various reasons, in not in a position to provide any of these things. But Fine Gael is.
Fine Gael is now best placed to provide what Fianna Fail voters looked for in the past.
The logical vote in this election, for people who subscribe to these traditional Fianna Fail values , is a vote for Fine Gael.

Is the panic justified?

The  recent panic in the markets about the sovereign debt of peripheral euro zone countries , like Ireland and Portugal, lacks objective  justification.
Bondholders are afraid they will not be repaid in full because of a proposal by Germany to amend the  EU Treaties to allow for bondholders of  euro zone countries , that  get into difficulties and have to get EU help, to have haircut or discount applied to the amount they are repaid. This would be part of a new crisis mechanism(ECRM)
Markets seem to be reacting as if this proposed mechanism could be applied to existing bonds or to bonds issued before the proposal  became law.  I believe they are wrong.
The Brussels based think tank, Breugel, has produced a paper on the subject, which is worth reading.
It says
“The creation of the of the ECRM would likely need to be established by a treaty. The mechanism would, therefore, only apply to future debt issuance”
I believe the European Commission and the German  Government would do themselves, and everybody else, a  big favour by making this clear.
It is a fundamental principle that laws cannot be applied retroactively, and the markets need to be told that.

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