John Bruton

Opinions & Ideas

Category: European Council

WHAT IS THE ALTERNATIVE TO A HARD BREXIT?

I believe  conditions can be created in which the UK voters could decide not to leave the EU at all.  Ireland should work to create those conditions. The terms for Brexit set out by Mrs May will  do incalculable damage to this island, politically, emotionally and economically.  We cannot simply wait for this to happen. While seeking to mitigate the effects of Mrs May chosen hard Brexit, we must  also do everything we can to ensure that there is no Brexit.

Apart from a few open questions, Theresa May has said what she wants. She wants out of the single market, out of the customs union, and “control” over immigration

The open questions she has avoided so far are about the financial terms of the divorce, the status of EU citizens living in the UK and vice versa, and two aspects of a future trade agreement (if there ever is one), namely arbitrating disputes, and  third country imports getting into the EU via the UK.

It is unlikely that the Article 50 letter, she will send to Donald Tusk next month,will us  tell much more about the UK negotiating position than the Lancaster House speech did. So it is time now to start thinking about how the EU will respond to Mrs May’s letter.

On the present schedule, the European Council would meet in April to agree the orientation it would give to the EU negotiators for the discussions with the UK that would start in June. These orientations would be agreed by consensus, so every EU head of government would have to be satisfied.  For Ireland, this April European Council meeting is potentially the most important European meeting a Taoiseach will ever attend.

In working out the orientation to be given to the negotiators, the crucial thing is for the European Council  to work out what would be it’s ” best alternative to a negotiated agreement” (BATNA). It is important to have an alternative ready because there is every possibility that no agreement will be reached within the two year time frame for negotiation, and ratification, of a withdrawal agreement.

Mrs May has  said that , for her , no deal at all  preferable  to a bad deal . Her BATNA, so to speak, is no deal at all.

“No deal” would mean the UK simply crashing out of the EU overnight, sometime before the end of March 2019.  This “no deal” scenario would be an overnight halt to flights, to trade and to commerce. There would be immediate, massive currency instability.

From the point of view of pure negotiating tactics, maybe it not surprising that Mrs May would threaten “no deal”.   But to do so, in the absence of a well crafted fall back position, is something  the UK cannot really afford.  It vindicates Tony Blair’s description of the UK government as “not driving the (Brexit) bus”, but rather “being driven” by partisan and ideological forces it has not tried to control .   In the absence of a real alternative to a hard Brexit, it  is on auto pilot heading towards a cliff.

The EU country that would be worst affected by the UK crashing out of the EU, with no deal  is, of course, be Ireland . So Ireland must use all its imagination and ingenuity to see if a creative way out for the UK and the EU can be found.

SHOULD THE EU OFFER UK VOTERS ANOTHER OPTION?

If the UK government is unable or unwilling, because of domestic politics, to work out a responsible “best available alternative to a negotiated agreement”(BATNA), then the EU side should do so for it.  It should adopt it alongside its line by line response the UK’s negotiating demands

Having a BATNA, would also strengthen the EU’s negotiating position. It would provide something with which an emerging deal could be compared. It would also provide a basis on which the UK could reconsider its decision of 23 June 2016, if it wants to do that.

As Tony Blair said, UK voters have a” right to change their minds”. After all politicians are allowed to change their minds, so why not voters?   If  UK voters, in a referendum,  sent their government on a mission towards Brexit, it would be reasonable that the same voters, rather than Parliament, tshould adjudicate on what will have been achieved (or not) by their delegates.

If UK voters ever do change their minds about Brexit, it will happen slowly and incrementally. Parts of the Brexit scenario, obscured during the Referendum, will become clearer during the negotiation. The unavoidable interconnections between EU freedoms, and EU rules, will emerge.   For this to happen, it will be in the EU side’s interest to ensure that there is maximum public understanding of the unfolding negotiation. Transparency will work in the EU’s interest.  A running commentary is exactly what is needed in the interest of public education!  

If the alternative to EU rules, is no rules at all, citizens, in both the EU countries and the UK, may come see EU membership in a different light. They may, for the first time in many cases, see the EU as something that simplifies their lives, rather than the reverse.

In my view, the “best available alternative to a negotiated agreement”, BATNA, that the EU side should adopt is an offer of continuing UK membership of the EU  broadly on the basis that the UK  was a member in 2015,  before David Cameron’s ill fated “renegotiation”.  

The 2015 terms were generous to the UK. They allowed it to opt out of the euro, of Schengen, of Justice and Policing cooperation, of the Stability and Growth Pact, and of  the justiciability in the UK of the European Convention. Furthermore, the UK itself had also decided, without Brexit, that it would have a referendum of any new EU powers. In that sense the UK was already having its cake, while eating it, before it ever decided on Brexit. These 2015 terms should be left on the table by the EU side, but without the unjustifiable UK budget rebate.

Of course, at this stage, the UK would reject such an offer out of hand.  But, as the inevitable consequences of  Brexit become clearer, UK public opinion might begin to see merit in it, particularly when it is compared with the costs of  simply crashing out of the EU, overnight,  with no deal at all, which is Mrs May’s fall back  negotiating scenario.

The resistance to keeping such an offer on the table is more likely to come from some existing EU member states. Some members will point to the UK’s insatiable demands, when it was a member , for opt outs, rebates, and exceptions.  Arlene Foster’s analogy about feeding crocodiles may come to their minds. They will recall General de Gaulle’s original veto of UK membership, and his foresight that the UK would never settle in as a member. They might also argue that offering the UK a way back, after it has triggered Article 50, might encourage others to try it on too.  

 But if they sit back and think about it, they will, I believe, conclude that a UK that inside the EU, is better for the EU, than a UK that outside. This will be so even if a trade deal is eventually concluded with the UK. Keeping the offer of resumed UK membership on the table would be good politics, and good economics for the EU.

The terms of the Lisbon Treaty do create some difficulty for this approach.

Article 50 (3) says a country that has sought to leave the EU under that article will be automatically excluded from the EU two years after it has triggered Article 50 unless the EU side “unanimously decides to extend the period”.

Article  50 (5) says that, if a state, that has withdrawn for the EU, asks to rejoin, it has to do under article 49, where the application would have to be ratified by all existing members.

Others may argue that the UK cannot withdraw its Article 50 letter once it has sent it.  This is a matter for the European Court of Justice to decide, but article 6.8 of the Vienna Convention on treaties explicitly allows revocation of a notice of intention to withdraw from a treaty.

These problems are real, but not insurmountable. A political declaration by the EU heads of Government in April  in favour of facilitating an eventual  UK resumption of EU membership, on its 2015 terms minus the budget rebate , would create a realistic basis for comparison in the debate  about Brexit that, in a sense  is only  now starting in the UK.  

 

LETTER TO EU HEADS OF GOVERNMENT

Along with other members of the “Friends of Europe” group, I have signed to following letter to the EU Heads of Government.  They need, I believe, to look beyond the immediate problems of the Union….The Greek crisis, Ukraine, Transatlantic investment  and the UK Referendum….and present a vision of the future of the Union. Only in that context can these immediate problems be solved.


Sir,

Discord between the European Union’s member governments has been reaching a crescendo, with taunts exchanged not only between Athens and Berlin but almost routinely between some other EU leaders. 

culture of recrimination and rebuke is growing to eclipse the commitment to intergovernmental solidarity and joint purpose that so successfully nurtured European integration over many decades.

Europe’s leaders would do well to turn to the spirit of the Schuman Declaration sixty-five years ago, for solidarity paved the way for the European Union.

In today’s terms, that means both North South and East West solidarity between member states, and between large countries and small.

Finger-pointing by national governments that are beset with their own particular political and
economic difficulties is understandable. But it is profoundly unhelpful. We Europeans face daunting longterm problems that can only be confronted and then overcome by a reaffirmation of unity, a fresh sense of common purpose and bold action.

The EU’s structural challenges are well-known, but not given sufficient emphasis. In most countries of the Union demographic shrinkage is set to reduce active labour force; pension reform has made progress in a number of European countries, but much remains to be done, if we want both financial and social sustainability. Increased immigration could possibly be part of the the answer, but brings with it heightened social and political tensions that carry their own serious risks which the Union must formally and publicly confront.

Enhancing the quality of our human capital is another and crucial part of the answer, but currently we see an alarming disinvestment in education in a number of countries.

Many European governments now hope they see signs of economic recovery, yet the underlying trends are less encouraging. Our slowness in embracing new technologies is handicapping our productivity improvements – twenty years ago Europe’s productivity improved at almost twice the rate as in America, and now it’s about half that of the U.S. The implications for our international competitiveness in what is being labelled the ‘Asian century’ are not encouraging.

On the EU’s home front, it is surely time that everyone with a hand in shaping Europe’s future awoke to the implications of the continuing eurozone crisis. Disagreements between creditors and debtors are cloaking the more important issues of inadequate design and of the North-South gap within Europe.

The latter is widening fast, and unless checked could yet tear the European Union apart.

We believe that a sense of shared purpose between EU governments must be restored. To that end, we urge the European Council to take the opportunity of its next scheduled summit meeting on June 25 to publicly commit to a ‘Doctrine of Unity’. This would see our national leaders pledging themselves to far more cooperation and mutual support because that’s explicit in EU membership though decreasingly observed. This in no way implies “blank check” financial support for any particular member state, but it does seek to reinforce the links that are so essential to Europe.

What is needed is for the Union’s heads of state and government to spell out the underlying weaknesses that cloud Europe’s future. These should be the strategic threats we Europeans must all face up to, as distinct from short-term difficulties. It should put into their proper perspective the damaging public spats between some governments that have been doing so much harm to the EU and to the credibility of the single currency and the common foreign and security policy.

Such a declaration by the European Council would ring loud alarm bells within the EU, and would send an important signal around the world that Europe may be down but is far from out.

Yours,

DEATHS OF REFUGEES CROSSING TO EUROPE FROM AFRICA


Below is a copy of a statement I cosigned, with other members of the European Council on Foreign Relations.

These are deaths of people reduced to desperation by conditions in their home countries. In many ways, they are like the people who left Ireland during the Famine here in the 1840’s, but with the added dimension of their being subjected to physical violence as well as starvation and disease.

They did not make the decision lightly to try to come to Europe, and  had  to undertake long and extremely dangerous overland journeys within Africa itself, before they ever get to the point of embarkation. 

They are people with a strong work ethic. As a prosperous continent, Europe has a moral and legal obligation to help these refugees. The burden should be shared across all EU states,
…………………………………………………………………………………………………………………….

Statement to Europe’s Heads of State and Government:

While migration is a complex problem that needs a comprehensive and long-term approach, the first priority for European leaders must be to stop the death toll that is a stain on the conscience of our continent. The events of recent weeks show that stopping search and rescue has not dissuaded migrants, but vastly increased the numbers of deaths. According to UNHCR, over 1,600 migrants have died in 2015 while trying to make the crossing. We call on the EU Heads of State and government to go beyond the ten point plan issued earlier this week in immediately restoring an expansive search and rescue operation in Mediterranean waters, with a level of funding and a mandate that match the humanitarian emergency that confronts us. 

The wave of migration from North African shores is fuelled by turmoil and conflict across the Middle East and the Sahel, and amplified by the breakdown of state authority in Libya. The EU is rightly committed to do what it can to help reverse these developments, but there will be no easy or short-term solution. 

In the meantime, the EU must accept that attempts at migration will continue on a large scale, and develop a range of measures that reflect our values and responsibilities, including: 

  • Legal channels for asylum seekers through facilities in countries of origin or transit, to reduce the numbers carried by illegal traffickers; allowing individuals to apply for asylum from a country other than their own.
  • Set up a system of relocation and redistribution within the EU, to reduce the weight of the burden falling on a handful of member states.
  • Policies to secure the accommodation of refugees in non-European countries, as long as they cannot return to their countries of origin, through the construction of safe and decent facilities in third countries.
  • Develop cooperation with third countries to destroy the boats used by traffickers.
  • Launch a cooperative law enforcement effort to break trafficking networks, confiscate their assets and prosecute those involved.


Measures such as these are necessary to ensure that the EU’s approach to the complex challenge of migration is sustainable, equitable and humane. However the starting point of the European response to the recent surge in migrant deaths must be a recognition that we cannot allow such terrible events to persist among those trying to reach our shores. “

THE EURO CRISIS—WHAT COULD GO WRONG?

The  European Union is facing a crisis because of the loss of confidence in the debts issued by several member states. This is related directly to the problems and activities of Europe’s banks.
On 9 December in Brussels, the Heads of Government of the 27 EU member states meet, yet again,  to come  forward with a solution to the  escalating loss of confidence in the debts owed by European  banks and  governments. Each time leaders meet, and come forward with proposals that, within days,  prove to be inadequate, further confidence is lost  both in the leaders themselves, and in the  European Union, as a functioning  and competent  political authority capable of managing the  affairs of its peoples. 
This is corrosive. It undermines political solidarity within and between Europeans, and it encourages   reversion to 1930s style nationalism, and to  general  anti politician sentiment, which could eventually erode the tolerance that is essential to democracy itself.
There is a limit to the number of failed government bond auctions we can endure. Many further such bond auctions are due in January and February. In February there will be a General Election in Greece, and the campaign in that election will be critically influenced by the perceived effectiveness of present EU arrangements and the  steps Greeks are having to take to comply  with these arrangements. If there is to be a good result in that election, the EU needs to show electors that it is in control of the situation.
THE ECB CAN ACT NOW, AND SHOULD DO SO

The European Central Bank needs to take note of the situation. It has a mandate under EU Treaties to maintain price stability, defined as around 2% inflation.  There is a growing risk that the problem Europe will face next year will be deflation, not inflation.
If industrial orders and consumer confidence continue to decline, prices and incomes will start to fall, and the situation of those in debt will worsen further because, even if they pay all interest, the real value of their debts  will increase as a consequence of the  fall in prices and incomes relative to the unchanged level of their debts.
If these circumstances are likely to arise, the ECB has a duty, in the interests of price stability, and in full accord with its Treaty mandate, to initiate quantitative easing to prevent it. An immediate statement to that effect from the ECB would go a long way towards resolving the short term crisis.
 
CONSEQUENCES OF A BREAKUP OF EURO
Failure to act could lead to a break  up of the euro. This could be devastating , because a lot of the debts owed by Europeans are owed  in euro to other Europeans. With the euro gone, the uncertainty about who owed how much, in what currency, to whom could lead to endless legal dispute.
Governments trying   to establish new national currencies could face huge problems stopping  outflows, which could  lead to  limitations on bank withdrawals, reintroduction of exchange controls, and  tariff walls against their exports by other countries  in the EU aimed at countering  competitive devaluations of one  new currency against another. 
The legal order on which the EU is based could break down. We should not forget how inherently fragile that legal order has always been. If one country refuses to implement a judgement of the  European Court of Justice in an important matter, and gets away with it, the EU has no  meaning anymore because  the EU has no police force to enforce its  rules. Everything is based on consent.
Against this background, one must ask oneself if further EU Treaty change could be part of the answer.  Treaty change could take, at the very least, a year to effect.  But we do not have that much time.  So the best we can hope for is a political commitment  by Governments to seek consent to a Treaty change from their parliaments or peoples.
SPEECHES OF CHANCELLOR MERKEL AND PRESIDENT SARKOZY

There has  been agreement  that a  proposal to improve the  governance of the  euro zone would be presented by the  President of the European Council, Hermann Van Rompuy to the EU Summit on  9 December. In advance of this, the leaders of the two biggest euro area states have set out their requirements. 
In her speech today, Chancellor Merkel has called for Treaty changes that would make sanctions on  states who breach  debt and deficit limits  automatic and  capable of  being enforced  directly through the  European Court of Justice.  It would take the issue out of politics and make it a legal one. This would require a change in the Treaties.
President Sarkozy, on the other hand, said yesterday that European integration must be pursued, and the problem has to be solved , inter governmentally. This is because he believes that only elected heads of national governments have the required political legitimacy to make the necessary decisions.
These two positions are quite far apart, and there are difficulties  with both of them.
The difficulty with Chancellor Merkel’s approach is that it will involve the European Court of Justice in making economic judgements. 
In the case of a disputes, is  the Court really qualified to judge whether  a deficit is excessive by reference to the point at which a country is at in its economic cycle? Can it adjudicate on whether estimates of future revenue are valid or not?
Even economists have difficulty with these issues.  So the framing of a Treaty change in this area will could be challenging.
President Sarkozy’s preference  inter governmentalism  will bring economic judgements into the realm of power politics, the sort of power politics that prevented any  sanctions being imposed on France and Germany when they became the first to breach the original Stability and Growth Pact. His approach would diminish the role of the European Commission.
Both the Chancellor and the President are paying too little attention to what has been already agreed in the “six pack” regulations. These, which require no Treaty change, will already make it more likely that a state, with and excessive deficit ,will be fined,  because a qualified majority (66%) would have to be found to agree NOT to impose a fine.
Neither  the Chancellor nor the President pay enough attention to the huge failure of  EU wide banking supervision that allowed all this foolish cross border lending to take place within the single currency area. Neither of them addressed the lack of implementation, from the very outset of the euro, of the ECB’s responsibilities in the Treaties , to  supervise the  activities of banks and the impact those  activities have had on the stability of  the European economy. Both of them spoke as if the problem  today was solely one of Government finances ,when it is also a problem of  bank finances

THE GERMAN AND DUTCH PROPOSALS TO CHANGE THE EU TREATIES – HOW RELEVANT  ARE THEY TO THE PROBLEMS WE FACE?


But what of the more  detailed proposals for Treaty change  advanced so  far.  How relevant and helpful are they?  It is suggested that  we must amend  the  EU Treaties, because it is argued that the existing  Treaties either
 
a)    prevent  us doing what is necessary to resolve the situation, or
b)    provide us with insufficient assurance that  we will not get into the same difficulties again.
The German CDU has demanded Treaty changes to provide for

  • automatic sanctions for breaches of the  Stability and Growth Pact( 3% deficit and 60% debt/GDP ratio),
  • a procedure for insolvency of EU states,
  • the direct election  by the people of the EU of the President of the European Commission,
  • taking away the exclusive right to initiate EU legislation from the Commission,  and allowing the Parliament and the Council  an equal  right with the Commission to initiate legislation,
  • more seats for bigger countries in the European Parliament based on their bigger populations.

They also want Europe to unilaterally introduce a tax on financial transactions.
The Dutch Prime Minister has suggested Treaty changes that  would

  • allow a European Commissioner for budgetary discipline to force  states running excessive deficits  adjust their policies and
  • to impose  sanctions  including reduced payments from Cohesion and Structural Funds, national budgets requiring  EU  approval before introduction,  suspension of voting rights in EU institutions,  and  ultimately expulsion from the  Euro  zone. 
It is important that any proposals for Treaty change are based on an honest appraisal of what  our problems actually are, and are not put forward  as  tokens to soothe domestic  opinion in particular countries. Our problems are too serious now for that sort of thing. 
Given that Treaty changes in the EU require all members states to ratify them, the way proposals are put forward is almost as important as the proposals themselves. 
If proposals seem to be one sided, or to emanate from a small cabal of big countries, rather than  from an inclusive process of which all member states have equal  ownership,  then the  proposed Treaty changes may be doomed from the  start, whatever their merits.
On the specifics of the CDU and Dutch proposals, I would  respond as follows.

THE CDU PROPOSALS

The difficulty with automatic sanctions for supposed breaches of the Stability and Growth Pact is that, if the country on  whom they were to be imposed objected, the dispute would go to the European Court of Justice, not to the Council of Ministers for arbitration. Breaches of the Pact would include  questions about whether  assumptions about future economic growth and thus revenue were  too optimistic, the point at which a country was on in its economic cycle, and the like.  These are questions on which economists, who are studying these matter all the time, usually  cannot agree.  There is little chance that the judges in the ECJ, many of whom have no background at all in economics, will make sensible judgements  in such cases.
A treaty provision for the insolvency of states, as suggested by the CDU, will be very difficult to draft and will be highly controversial.  There may be some merit in establishing rules in this field, but I wonder if this is the time to be doing it.  The issue will not be being debated in an academic setting, but in the midst of febrile market conditions. There is a strong risk that the twists and turns  in a public debate on the  state insolvency   will have a  negative and unintended influence on the markets.
 We should not forget that ,when  the issue of so called  private sector involvement in resolving the Greek debt  crisis was first mooted by Germany , it had an immediately damaging effect on the capacity of some other  smaller countries to borrow.

CDU PROPOSAL FOR DIRECT ELECTION OF EU PRESIDENT MOST WELCOME
The direct election of the President of the European Commission by the people of Europe is a vey good idea. I advocated it when I was  President of the European Council in  1996, and again when I was a member of the Praesidium of the Convention of the Future of Europe. Interestingly, the only member of the Convention who gave the proposal any support at that time was George Papandreou. It is very good that the CDU is supporting this proposal now.
A direct election of this  kind is what we need to create a  genuine European  demos, or  sense of shared destiny, among EU  citizens whatever their nationality or language . Without such a demos or  shared  identity, we will be unable to persuade Europeans to make sacrifices for one another, and that is something we need if Economic and Monetary work.

BUT CDU ATTACK ON COMMISSION VERY DANGEROUS

On the other hand, the CDU proposal to take away from the Commission the exclusive right to propose legislation, and  to require it to  share that with the European Parliament and the Council of Ministers,  is a thoroughly bad idea.
It would  weaken the Commission even further than the rampant intergovernmentalism of Europe’s response to the financial crisis has already  done. 
The European Commission seeks to put forward proposals that will command  support  from  all countries , large and  small. It formulates compromises in advance.
If the  Parliament and the Council could table competing legislative proposlas on the  same  subjects as the Commission, this would make the search  for subtle compromises much more  difficult. It would  enhance the power of the bigger delegations of the bigger countries in the  European Parliament  and would encourage  crude nationalistic  majoritarianism in that body. 
The Commission is the protector of the interests of  smaller  member states within the EU, and this  CDU proposal will be seen by them as provocative and subversive of the community method on  which the EU was founded.
CHANGING REPRESENTATION IN PARLIAMENT WOULD UPSET A DELICATE COMPROMISE
The CDU proposal to increase  the relative representation in the European Parliament of  countries with bigger populations, but without reducing the  extra voting weight that bigger countries enjoy in the  voting system of the Council of Ministers,  overturns one of the central compromises reached in the  drafting of the   European Constitution and the Lisbon Treaty.
 The CDU should remember that ,even if the United States which is a fiscal union, all states have equal representation in the  Senate while populations have  equal weight in the House of Representatives.
 Under  the Lisbon Treaty, the EU has struck a similar compromise.  Bigger states have bigger representation in both the Parliament  and the Council, but there is a system of “degressive proportionality” which compensates smaller states by  giving the proportionately bigger representation than their population would strictly  justify.
 I cannot understand why the CDU wants to reopen this  difficult matter, unless of course it want  to use the proposal as a negotiating  weight to gain traction on some other issue. Frankly, I think our situation is serious enough without that sort of gamesmanship being introduced.
A FINANCIAL TRANSACTIONS TAX
The suggestion of a financial transactions tax has populist appeal. It may slow down financial transactions and allow a little more time for reflection in the markets. It would curb automated  transaction systems by making unduly frequent buying and selling slightly more expensive. It could  provide the EU with a new source of revenue, which would be very welcome.
But  It would also lead to  financial sector activities moving out of Europe, and the tax revenues that those  activities generate for  EU states going into the treasuries of   non EU countries. Given that unanimity must be obtained for this proposal to go through, I wonder if it is not, like the proposal to redistribute seats in the European Parliament,  being put forward as a  negotiating  ploy .  Again, one must ask if this displays the sort of seriousness that out parlous situation requires.
THE DUTCH PROPOSALS
Turning to the Dutch proposal to enhance the Commission’s control over the budgets of states running excessive deficits, it is hard to argue against the principle of what they are seeking to achieve.  The CDU has argues that fines for excess borrowing should be automatic.
But one might wonder how urgent  the proposal is.
 Financial markets are already imposing very harsh discipline, through demanding higher interest rates of countries with excessive deficits.
 It will be a long time before any EU country will ever again be able to borrow money at easy rates of interest unless their fiscal policies are demonstrably sound. Do we really need to reinforce what the markets  are already doing with Treaty changes at this stage? 
It is also worth noting that the reverse majority procedure now applies to both the Excessive Deficit and the Excessive Imbalance procedure. So a country, that is liable to be fined for running an excessive budget deficit, or an excessive balance of payments surplus or deficit, will automatically have to pay a  fine,  unless it can persuade a qualified majority in the  Council NOT to let the fine go ahead. Perhaps we should see how that new procedure works before going for Treaty change?
 In any event, levying a fine on a country, that is already in financial difficulty , will add to the difficulties.  It will be too late to be an effective deterrent
CUTTING STRUCTURAL FUNDS?
The Dutch proposal to reduce payments from the Structural Funds to  countries with excessive deficits  will  fall more heavily on poorer countries than on richer ones.
 Excessive deficits or economic imbalances in richer countries can be just as damaging as they can be in poorer countries, perhaps more so. For example, the Netherlands is less reliant on structural funds than is Estonia, so a proposal to reduce structural would hurt  Estonia  proportionately more than it would the Netherlands, even though their  excessive deficits  might be of  the same proportionate scale. That is unbalanced.
The proposal that budgets of deficit countries require advance EU approval is also potentially unbalanced.
 One country can only run a trade surplus if another country runs a deficit. If a country is deliberately managing its economy in order run consistent surpluses, it is contributing to deficit problems of other countries. That needs to subject to EU surveillance too.

DUTCH PROPOSAL TO SUSPEND VOTING RIGHTS IS NEO COLONIALIST

The proposal  by the  Dutch Prime Minister to suspend the voting right in EU institutions of a country which has excessive debts or deficit is tantamount to reintroducing colonialism within Europe, because it  would involve imposing decisions, in which they have  had  no vote, on  countries who joined the EU precisely because they  thought it was a democratic organisation.  The existence in 21st century Europe of a mentality that would make such a proposal is deeply troubling.
I am unclear about the merit of changing the Treaty to allow for the expulsion of a country from the euro zone. It would imply that the euro itself is a temporary expedient. It would aggravate speculative pressure, without any compensating benefits.
CONCLUSION
 
I believe the proposals from the CDU and from the Dutch Governments to  change the Treaties are not adequate to the problems we face, and in some cases are a distraction.
 The so called six pack proposals, recently agreed go a long way to strengthen disciplines on fiscal policy, and do not need Treaty change. They should be given a  chance to work, before we contemplate additional Treaty changes for control of national budgets.
But the CDU proposal for a direct election of the President of the Commission does deal with an important problem that underlies our present problem, namely the lack of a sense ,on the part of ordinary Europeans,  that they can, through their vote, influence the direction of EU policy.
 If citizens could  directly vote the President of the EU  in or out of office , that will give them a much more direct sense of control of the direction of the EU than they get  now from just voting  for their local or national MEPs.
None of the proposals on the table so far deal with the issue of banking, which is at the heart of our economic difficulties today. It was foolish lending decisions be banks that caused our problem.
The original Maastricht Treaty  of 1992 envisaged the ECB taking an overall role in overseeing the prudential supervision of  banks, especially banks that were lending across borders within the euro zone. This provision in the Maastricht Treaty was never brought into effect , because activating the ECB’s powers in this matter required unanimity. Some countries did  want not anyone else enquiring into their banks, and that reluctance continues even  to this day.
 
 Any Treaty change now should include
1.)  much tighter EU wide supervision of  banks,
2.)  restriction on the size of banks, and 
3.)  an EU  wide deposit guarantee scheme.

Are Two Days Meetings, Once a Quarter, Enough to Run Europe?

The December Summit of the EU agreed to introduce an amendment to the EU Treaties to create a permanent bail out fund for Eurozone member states, that will be activated “if indispensable to the stability of the euro area as a whole”.
This is quite a high bar to cross. Suppose there is a financial crisis affecting the majority of countries in the euro zone, but one large country has insulated itself against this economic shock by building up large savings and preventing its banks from lending more than a very conservative amount. Would the existence of that one such country in the euro zone be legally sufficient to prevent the bail out fund being used then, because the crisis was not affecting the euro area ”as a whole”?
This wording in a Treaty will be very severe and may mean that countries in difficulty will not use this fund at all but will prefer to seek help from the IMF, because the IMF will look at the situation of individual countries, not at the euro area as a whole.
It would appear that this announcement has not calmed the markets. If so, this is because it is a one sided solution. It deals with helping countries avoid collapse, but it does so by enabling them to add further to their debts by borrowing on the strength of the credit of other member states who have a better credit rating.
What it does not do is provide a vision of how economic growth will be restored , so that a flow of funds will be created to repay the debts. The EU heads of Government have produced tons of paper on this topic in the past, notably under the so called Lisbon strategy. These papers have been full of pieties about “reform” and “flexibility”, but have lacked specifics and rigorous follow up. I always had reservations about the Lisbon Process because it lent the good name of the EU to systematic evasion of responsibility in areas where the EU actually had no power to act under the Treaties, and thus no responsibility for failures.
My own view is that the European Council, which is a body consisting of 27 part timers, is not a body that is capable of the sort of rigorous, sustained, and self critical thought that is needed to restore economic growth at this critical moment in history.
27 heads of Government, all of whom are already fully employed managing their own countries , can only turn to EU affairs in their spare time, which may be on the plane on the way to the meeting in Brussels. The European Council does have a small secretariat and a fulltime Chairman, but that is not enough to make up for the fact that the people who make the actual decisions are all part time Europeans. Arguably the European Commission is available to help but its role is sidelined by its institutional rivalry with the Council.
We are facing more than a financial crisis. We are facing a crisis of the welfare state in ageing societies. We are facing a crisis of globalisation, and potentially even a crisis of the efficacy of European democracy. These subjects need to be tackled together in a sustained way, with a real sense of urgency. Decisions need to be taken now, that point the way forward for Europe for the next ten years. Leaders need to sit together until they have reached a full mutual understanding on all that needs to be done, the whole job, not just bits of it.
I believe that the members of the European Council from the 16 euro area countries should be  recalled, in the days after Christmas before the markets get going again in the New Year, and work together for a week or more with all the relevant members of the European Commission, to put together a ten year strategy for political and economic reform to facilitate the economic revival of the entire euro zone.
On the narrower issue of bank debts, the conclusions of the summit are also one sided. For example, the Irish banks owe 113 billion euros to German banks , 107 billion euros to British banks, and a large amount to Belgian banks. If mistakes were made in borrowing this money by the Irish banks, mistakes were made in lending it too. The lending banks were regulated in their home countries, not in Ireland.
While the Irish banks were regulated by Irish authorities who did not do their job properly, Irish taxpayers were not parties to either the lending decisions, nor to the borrowing decisions. Yet they are taking on the full responsibility of ensuring that the loans are repaid. They are getting new loans to help them do this, but they will have to repay those loans in full. There is a lack of symmetry here, to use a mild term.
Of course something along these lines was needed to prevent the problems of the Irish banks infecting the German , Belgian and British banks too. In protecting those banks one is protecting German, Belgian and British taxpayers. So surely this is a European responsibility, as well as an exclusively Irish one?
This is the sort of issue that it would take a lot of time to work out fairly and proportionately, time that the busy part time Europeans on the European Council do not allow themselves to take

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