Opinions & Ideas

Category: European Union Page 1 of 4

THE ARTICLE 16 ROW IS LIABLE TO HAPPEN AGAIN UNLESS LESSONS ARE LEARNED

What lessons are to be learned from the unfortunate controversy around the European Commission’s brief consideration of using Article 16 of the Northern Ireland Protocol to stop exports from the EU of some Covid 19 vaccines to Britain, via Northern Ireland?

The UK Minister, Michael Gove said “it was a moment when trust was eroded and damage done” and the chairman of the  UK’s House of Commons EU committee described it as a “vindictive act”.

On the other hand, the EU has a sovereign right to impose export restrictions, and also to protect its market from imports of goods that do not comply with EU standards (whether these come into Ireland or to any other part of the EU)

Lessons must be learned, because this sort of Article 16 problem could recur over and over again for years to come, as the UK diverges more and more from the EU.

The first thing to say is that the proposed EU restrictions on exports of certain vaccines are still going ahead.

All that has changed is that Article 16 of the Protocol is not now being used to enforce these restrictions. The restrictions will presumably be enforced in, and by, the pharmaceutical manufacturing plants themselves, inside the EU rather than on the border.

Secondly, the restrictions only apply to vaccines that were subject to an Advanced Purchase Agreement with the European Commission, where the European taxpayer had put up money to help the pharmaceutical manufacturers to develop and test the vaccines. This was agreed on the basis that the EU would then get supplies of the vaccines under an agreed schedule from the manufacturer.

 This is not unreasonable in itself.

 It is open to question whether the present elaborate process of export restriction and authorisation was really necessary to ensure the EU got the supplies. A threat of civil legal action for breach of contract would seem to be a more targeted approach, than the highly bureaucratic export ban we now have.

Of course, it is theoretically possible that Northern Ireland could have been used as a backdoor to circumvent the EU restriction of exports to the rest of the UK. To avoid this, the regulation, now in force, still requires information to be provided on vaccines going to Northern Ireland.

SHOULD ARTICLE 16 HAVE BEEN USED?

 But it is quite clear that Article 16 was not the right tool to use to achieve the goal the Commission had set for itself.

 We should look at what Article 16 of the Protocol allows.

It provides for unilateral safeguard measures to be adopted by either the EU or the UK, where there are difficulties that “are liable to persist”.

Under Article 16 the safeguard measures should only be ones that are “strictly necessary to remedy the situation”.

Arguably neither condition was met in this case.

 The vaccine supply difficulties are inherently temporary.  They are not likely to persist.

Other measures could have been or be adopted, within the EU itself, to require the vaccine manufacturers to meet their obligations, without using Article 16 of the Protocol. So the use of Article 16 was not “strictly necessary.” It should be a last resort, not a first resort.

DID THE COMMMISSION MAKE ITS DECISIONS IN THE BEST WAY?

So why did then use of Article 16 come to be considered by the Commission at all?

There was a degree on panic in many countries, notably Germany and France, about the pace of supply of vaccines.

The Commission was coming under pressure.

 Even though it was the manufacturers that were failing to fulfil their contracts, it was the Commission that had negotiated those contracts. The fact that negotiating this sort of contract was something new for the Commission was not an acceptable excuse, nor was it enough to say that the delays might have been much greater, and the price to the taxpayer much higher, if each the 27 EU countries had been left to negotiate their own contracts, and outbid one another. But the Commission President Ursula Von der Leyen felt she had to show she was “doing something”.

She decided on the speedy introduction of selective export restrictions.

 In the interests of speed, she adopted a decision making procedure, that maximised the possibility of mistakes. Rather than call a meeting of the full Commission, which could have been done by secure video, she decided to push the ban through using a written procedure, leaving minimal time for scrutiny.

Adopting such a radical measure, like an export restriction by this short cut written procedure was inherently problematic.  While the EU has a sovereign right to restrict exports outside its borders, it is an inherently serious step, and should never again be attempted in this way.

Article 17 (8) of the Treaty makes clear that the Commission, as a body, is responsible for its acts, and the Commission’s own rules of Procedure state clearly that “ the Commission shall act collectively”.

 The last minute use of the written procedure to make an important international decision minimised the possibility of genuinely collective decision making by Commissioners. That is why it should not happen again. It weakens the authority of Commission, and thus of the EU as a whole.

THE NORTHERN IRELAND PROTOCOL IS A FRAGILE COMPROMISE

 The other lesson to take from what happened is that it exposed the inherently fragile nature of compromise that is the Northern Ireland Protocol.

 The Protocol requires the UK to implement and enforce EU law in respect of goods standards within part of the UK, and to prevent goods entering that part of the UK, if they do not comply with these standards. That is no small thing on principle.

 It may not be so difficult to implement it now, when the UK has only just left the EU, and UK and EU goods standards are almost identical. But, gradually, as the UK begins to adopt different standards for goods to those applicable in the EU, the risks of future controversies will increase.

Every time either the UK or the EU adopts a standard for goods that is different from the one the other is applying, there will be an additional barrier or restriction between Britain and Northern Ireland. Because the issues are highly technical, the flare up could be sudden and unexpected, with the risk of wholly unintended consequences, as the latest controversy shows.

One should add that there is also the possibility of disputes on the interpretation of the Trade and Cooperation Agreement (TCA) between the UK and the EU.

Under Article 9.4 of the TCA, either side may adopt “rebalancing measures”, where there is a significant divergence from the Level Playing Field provisions of the TCA, if they feel they have been put at a disadvantage by the divergence.

To the extent, if any, that these “rebalancing  measures” affect Northern Ireland, there will be an additional issue to be solved.

So one must hope that it never comes to this, and that the UK and the EU work in harmony in future, because the more disharmony there is, the greater will be the political problems for both parts of Ireland.

This will require a lot of tedious work by diplomats and officials in Brussels, London, Dublin and Belfast to operate an early warning system to avoid conflicts like the recent one. This is a permanent, but inevitable, extra burden of Brexit.

THE EU AND THE NEW BIDEN ADMINISTRATION

The newly sworn-in US President Joe Biden has pledged to and I quote repair our alliances and engage with the world once again, so what will EU-US relations look like under a Biden presidency. The EU will certainly be looking to nurture its friendship with their Washington Post Brexit, closer to home, diplomatic relations have been somewhat strained over recent hours after an indication from the UK, although perhaps we’re hearing that that’s been reversed now to deny the EU Ambassador in London full diplomatic status of that. I think Boris Johnson is set just in the last few minutes that that will not be the case that there will be full diplomatic status given to the EU ambassador to the United Kingdom. For more on all this. Let’s talk to former Taoiseach  and EU ambassador to the United States John Bruton a very good afternoon to John  Bruton. Thanks for taking our call that news just coming to hand from my I think Boris Johnson in the last few minutes in relation to the question of the status of the the UK the EU Ambassador and UK. I thought it’s important that …

Radio1

EACCNY Pulse: Transatlantic Business Insights

Listen to this final “Brexit Musing” episode with John Bruton, the former Irish Prime Minister (Taoiseach) and former EU Ambassador to the United States who will share his wisdom on what Brexit means and his thoughts moving forward with regard to not only the UK and EU, but also the U.S.

WHAT THE BREXIT TRADE DEAL MEANS

The Trade and Cooperation Agreement between the EU and the UK is an exercise in damage limitation. The UK will face numerous obstacles because of its decision to leave the EU, including leaving the Customs Union and Single Market.

 But it was in nobody’s interest to add to these obstacles. That was the spirit in which the EU approached the negotiation.

The Agreement may run to 1256 pages, but it boils down to some fairly simple and sensible ideas.

 While no longer a member of the EU, the UK still wants to do business with the EU, and the EU members want to do business with it. 

So, for the future, there needs to be a system for ensuring that there are no surprises, or unfair trading , that would disrupt mutually beneficial business. That is essentially what the Agreement is all about.

 While the UK was a member of the EU, that goal was achieved by having a common set of business rules, made democratically and together, and interpreted in a consistent way by the European Court of Justice (ECJ). These rules could be enforced in national courts. In other words the goal of predictable and fair business conditions between the UK and its fellow EU members was achieved directly by common action. 

Under the new Agreement, the same goal will be pursued, but indirectly.

 Common rules, made and interpreted in common, will be replaced, as far as trade between the EU and the UK is concerned, by understandings set out in the Agreement, which will be interpreted by arbitrators appointed under the Agreement.

 These understandings will have legal force, but will generally only be enforceable under the procedures set out in the Agreement, rather than directly in national courts.

While the EU and the UK will each be free to determine their own policies on the environment, social and working conditions, and subsidy controls, Article 9.4 of the Agreement allows for “rebalancing” measures to be taken by the other side if it feels its own businesses are being put at a disadvantage. This is supposed to restore the level in the level playing field. 

The Agreement contains principles, now to be enshrined in international law through the Agreement, that are shared by the EU and the UK. These cover environmental, social and subsidy issues. Arbitration Tribunals to be set up under the Agreement will interpret these agreed principles in specific cases. They will have a legal, but also a political, task.

Most of the text of the Agreement is taken up with procedures for resolving disputes. 

Matters, currently resolved in national courts under EU law, will have to be resolved at inter state level between the UK and the EU, rather than in the national courts. This is inherently more cumbersome.

Sometimes the issue will be settled by political agreement in one of the myriad of committees set up under the Agreement. 

ARBITRATION…. THE CORE IDEA

If the issue cannot be settled in this way, it will go the arbitration. 

So, instead of the interpretation being done by Judges of the ECJ, they will be done by an Arbitration Tribunal set up under the Agreement.

An Arbitration Tribunal will consist of three people. There will be lists of qualified arbitrators from which the three may be chosen, one by the UK and one by the EU and the Chair of the Tribunal will be someone who is not from EU or the UK. 

 I think this idea that the chair must come from outside either the EU or UK may prove difficult. It will not  always be easy  to find suitable chairs who are not either British or EU citizens, especially as the work will have to be done at short notice and under tight time limits.

To qualify for appointment, an arbitrator will have to have “demonstrated expertise in law and international trade” .  They will all have to be people “whose independence is beyond doubt”. They will serve in their individual capacities, and not take instructions from anyone. They will have to be people who would qualify to be judges in their home countries.

I suspect there will be a lot of intense haggling over the composition of particular Arbitration Tribunals.  The nationality of the arbitrators and their past records will be scrutinised by the governments most affected by the issues in dispute. 

There are detailed provisions in the Agreement to prevent stalling by either the EU, or the UK, in appointing Arbitrators. Once established, the Tribunals will have to deliver their ruling within 130 days . Within 30 days after that, the affected party will have to say how they will comply with the ruling.

This entire structure of dispute resolution will be presided over by a Partnership Council to be chaired jointly, by a UK Minister and an EU Commissioner. It will be assisted by over 20 specialised committees and a number of Working Groups, all of which are listed in Title III of the Agreement.

EVEN MORE MEETINGS THAN BEFORE!

 I expect that there will, in the future, be even more EU related meetings for UK officials than in the past.  But the dynamic will be different.

 Instead of being able to build alliances on particular topics with other EU member states, the UK will in future find itself alone in the room with the European Commission.

 The Commission side will have instructions, negotiated in advance with the 27 member states, so there will be a high degree of rigidity in the process.

As the EU member state most affected by relations between the UK and the EU, this will be a particular challenge for Ireland. Irish officials in Brussels and will have to stay on top of all that is going on in the various EU/UK committees. Cultivating an understanding with the Commission officials serving on these committees will be a priority.

No longer in the EU, the UK will, notwithstanding the provisions of the Agreement, encounter significant extra bureaucracy and uncertainty in doing business with the EU. 

PARTING COMPANY GRADUALLY

This will lead to a gradual divergence between the UK and all its European neighbours, including Ireland. That, in turn, will have cultural and political effects. 

The UK, and the EU states including Ireland will, so to speak, be mixing in different company .They will increasingly be seeing the world from diverging angles of vision. Issues that were previously depoliticised will become more political.

 Eventually, this may affect the way the UK sees its physical and military security. NATO is already under strain, and Brexit creates a new fault line within NATO.

 While Ireland is not in NATO, we live in a part of the world which has sheltered under the NATO umbrella, and we are deeply interconnected with NATO’s biggest member, the US.  

Brexit may be over and done with, but the forces which led to it…identity politics and suspicion of foreigners….have not gone away.

A FAILURE TO PROTECT THE INDEPENDENCE OF THE EUROPEAN COMMISSION

LACK OF FAIR PROCESS, OR OF RESPECT FOR THE EU TREATIES

I have always believed that the independence of members of the European Commission was a keystone of successful European integration.

 Commissioners are obliged by their oath of office to seek a European solution to problems, rather than just seek a balance between conflicting national interests.

 Since 1958, they have done so, and this is why European integration has succeeded, while efforts at integration on other continents have failed, under the weight of national egoism.

The larger the membership of the European Union became, the more important did the independence of Commissioners from national politics become.

Some believe the Commission is too large. From an efficiency point of view, they have a point. 

But Ireland, among others, has insisted that, despite this, each member state should have one of its nationals as a member of the Commission at all times. 

But if the “one Commissioner per member state” rule is to be kept in place, as the Union enlarges, Commissioners, from all states large and small, must demonstrate that they put the European interest first, and are not subject to the vagaries and passions of politics in their country of origin. 

In other words, European Commissioners must be independent, and be seen to be so. All member states must be seen to respect this.

This is why I am so deeply troubled by the attitude take by the Irish government, and then  by President Von Der Leyen of the European Commission, to calls for the EU Trade Commissioner Phil Hogan to resign.

 Both of them failed in their understanding of the European Union, and of one of its vital interests….. namely the  visible independence of members of the European Commission from the politics of any one EU state, large or small. 

I was genuinely shocked by what happened.

 Late in the evening of 22 August,  the leaders of the Irish Government called on the EU Trade Commissioner, Phil Hogan to “consider his position”. Those words mean resign.

 They piled on the pressure thereafter, with a further statement, on 23 August, containing a political determination that he had broken their Covid 19 rules. 

Phil Hogan did resign on 26 August.

 That was his decision and one he was entitled to make.

LESSONS FROM THIS PRECEDENT

But there are profound lessons to be learned by President Von der Leyen, and by the Commission as a whole , as to how, and to whom, Commissioners should be held accountable,  and a need to understand what this precedent means for the future political independence of Commissioners from their home governments.

 Separately, there are also questions to be asked about the internal management of, and the collegiality, of the Commission.

I will set out my concerns here, drawing on the words of the EU Treaty, which I helped draft as a member of the Convention on the Future of Europe.

On the 26 August, President Von der Leyen clearly withdrew any active support from Commissioner Hogan, and unquestioningly accepted the line of the Irish Government. This influenced him to resign his position.

 In this action, I contend that she did not fulfil all her responsibilities under the Treaties.

 I know she faced a genuine political difficulty. But the Treaties were framed do deal with fraught political situations, while preserving the independence of the Commission and due process.

 The Commission is guardian of the Treaties, and should be seen to defend the rules laid down in the Treaties in all circumstances, even when it is politically difficult. 

Article 245 of the Treaty requires member states to respect the independence of Commissioners. Ireland is bound by that article having ratified it in a referendum.

 One should note that Article 245 refers to respecting the independence of Commissioners individually, not just to the Commission as a whole.

 It is for the Irish government to say whether publicly demanding a Commissioner’s resignation, for an alleged breach of purely Irish rules, is compatible with the Irish government’s Treaty obligation under Article 245 to respect his independence, It had other options,

If any Commissioner is visiting a member state for any reason, he or she is subject to the laws of that state, on the same basis as any other citizen. A visiting Commissioner would not be above the law, but nor would she be below it either. 

If she breached the law, due process in the Courts ought to be applied, as to any citizen.

 This what would have happened if the visiting Commissioner was from any country other than Ireland and had had the difficulties which Phil Hogan had….due process would have been followed. 

 The statements of the Irish government, and the unsatisfactory explanations by Phil Hogan, did create political problems for the President of the Commission.

 She had to do something, but not necessarily what she did do.

 But there were options available to her which, inexplicably, she failed to use or even consider.

RULES IGNORED

 Commissioners are subject to a Code of Conduct, last updated in 2018. Under that Code,

 there is an ethics committee to determine if the Code has been breached. If the matter was urgent, there is provision for a time limit  to be set for a report by the Committee.

 But a reference to the Ethics Committee would have allowed for due process, and a calm and fair hearing. More importantly using this process would also have asserted the independence of the Commission as an institution.

 The Code says that it is to be applied “in good faith and with due consideration of the proportionality principle” and it allows for a reprimand. where the failing does not warrant asking the Commissioner to resign. 

Now, because of the course followed, we will never know if there was any breach at all of the Code at all by Phil Hogan. 

President Von der Leyen’s failure to use these mechanisms seems to be a serious failure to defend due process and proportionality, and to protect  the independence  of individual Commissioners, as she was required to do by the Treaty.

 The Commission and the Parliament should enquire into why she did not do so.  There are consequences now for the viability of the Code of Conduct, if it is not to be used in a case like this. 

CRITERIA NOT APPLIED

Was what Phil Hogan did a resigning matter anyway ?

Article 247 allows for only two grounds for asking a Commissioner to resign. There are that he or she is

“no longer being able to fulfil the conditions for the performance of his duties”

Or

” has been guilty of serious misconduct”.

I do not think either condition was met in this case.

Phil Hogan would have been fully capable of carrying out his duties while the Ethics Committee did its work. Instead his position is now effectively vacant.

Most people I have spoken to do not think the breaches committed by Phil Hogan, while foolish, amounted to “serious misconduct” within the meaning of Article 247.

 Failure to recollects all the details of a private visit over 2 weeks, or to issue a sufficient apology quickly enough, may be political failings, but they hardly  rise to the level of “serious misconduct”. Any deliberate and knowing breach of quarantine should have been dealt with in the Irish courts without fuss. 

 In any event, President von der Leyen would have been far wiser to have got an objective view on all these things from the Ethics Committee, before allowing Phil Hogan’s resignation.

WHY DID THE COMMISSION NOT MEET?

Another issue is the President’s failure to call a Commission meeting, if she was considering that a Commissioner should resign.

Under article 247 it is the Commission, not the President alone, who may compulsorily retire a Commissioner, and even then, they must have the approval of the European Court of Justice.  These safeguards were put in the Treaty to protect the independence of the Commission. They were ignored in this case.

The resultant weakening of the institutional independence of the Commission is very damaging to European integration and to the interests of smaller EU states. This should be of concern to the European Parliament.

WE NEED A FULL STRENGTH TEAM ON THE PITCH AS BREXIT REACHES THE ENDGAME

It is increasingly likely that, unless things change, on 1 January 2021,  we will have a no deal Brexit. The only agreement between the EU and the UK would then be the already ratified Withdrawal Agreement.

 There are only 50 working days left in which to make a broader agreement. The consequences of  a failure to do so  for Ireland will be as profound, and even as  long lasting, that those of Covid 19.

A failure to reach an EU/UK Agreement would mean a deep rift between the UK and Ireland.

 It would mean heightened tensions within Northern Ireland, disruptions to century’s old business relations, and a succession of high profile and prolonged court cases between the EU and the UK dragging on for years.

 Issues, on which agreement could easily have been settled in amicable give and take negotiations, will be used as hostages or for leverage on other issues. The economic and political damage would be incalculable.

We must do everything we can to avoid this.

Changing the EU Trade Commissioner in such circumstances would be dangerous.  Trying to change horses in mid stream is always difficult. But attempting to do so at the height of a flood, in high winds, would  be even more so.

The EU would lose an exceptionally competent Trade Commissioner when he was never more needed. An Irishman would no longer hold the Trade portfolio. The independence of the European commission, a vital ingredient in the EU’s success would have been compromised…a huge loss for all smaller EU states.

According to Michel Barnier, the EU/UK talks , which ended last week, seemed at times to be going “backwards rather than forwards”.

The impasse has been reached for three reasons.

THE MEANING OF SOVEREIGNTY

Firstly, the two sides have set themselves incompatible objectives.

The EU side wants a “wide ranging economic partnership” between the UK and the EU with ”a level playing field for open and fair competition”. The UK also agreed to this objective in the joint political declaration  made with the EU at the time of the Withdrawal Agreement.

Since it agreed to this, the UK has had a General Election, and it has changed its mind. Now it is insisting, in the uncompromising words of it chief negotiator, on

 “sovereign control over our laws, our borders, and our waters”.

This formula fails to take account of the fact that any Agreement the UK might make with the EU (or with anyone else) on standards for goods, services or food stuffs necessarily involves a diminution of sovereign control.

Even being in the World Trade Organisation (WTO) involves accepting its rulings which are a diminution of “sovereign control”. This is why Donald Trump does not like the WTO and is trying to undermine it.

The Withdrawal Agreement from the EU (WA), which the UK has already ratified,  also involves a diminution of sovereign control by Westminster over the laws that will apply in Northern Ireland (NI) and thus within the UK.

 The WA obliges the UK to apply EU laws on tariffs and standards to goods entering NI from Britain, ie. going from one part of the UK to another.

This obligation is one of the reasons given by a group of UK parliamentarians, including Ian Duncan Smith, David Trimble, Bill Cash, Owen Patterson and Sammy Wilson, for wanting the UK to withdraw from the Withdrawal Agreement, even though most of them voted for it last year!

Sovereignty is a metaphysical concept, not a practical policy.

Attempting to apply it literally would make structured, and predictable, international cooperation between states impossible. That is not understood by many in the UK Conservative Party.

THE METHOD OF NEGOTIATION

The second difficulty is one of negotiating method. The legal and political timetables do not gel.

The UK wants to discuss the legal texts of a possible Free Trade Agreement first, and leave the controversial issues, like level playing field competition and fisheries, over until the endgame in October.

The EU side wants serious engagement to start on these controversial issues straight away .

Any resolution of these controversial issues will require complex legal drafting, which cannot be left to the last minute. After all, these legal texts will have to be approved by The EU and UK Parliaments before the end of this year.

There can be no ambiguities or late night sloppy drafting.

The problem is that the UK negotiator cannot yet get instructions, on the compromises he might make , from Boris Johnson. Boris Johnson is preoccupied instead with Covid 19, and with keeping the likes of Ian Duncan Smith and Co. onside.  He is a last minute type of guy. 

TRADE RELATIONS WITH OTHER BLOCS

The Third difficulty is  that of making provision for with the Trade Agreements the UK wants to make in future with other countries like the US, Japan and New Zealand. Freedom to make such deals was presented to UK voters as one of the benefits of Brexit.

The underlying problem here is that the UK government has yet to make up its mind on whether it will continue with the EU’s strict precautionary policy on food safety, or adopt the  more permissive approach favoured by the US.

Similar policy choices will have to be made by the UK on chemicals, energy efficiency displays, and geographical indicators.

The more the UK diverges from existing EU standards on these issues, the more intrusive will have to be the controls on goods coming into  Northern Ireland from Britain, and the more acute will be the distress in Unionist circles in NI.

Issues that are uncontroversial in themselves will assume vast symbolic significance, and threaten the peace of our island.

The UK is likely be forced to make side deals with the US on issues like hormone treated beef, GMOs  and chlorinated chicken. The US questions the scientific basis for the existing EU restrictions, and has won a WTO case on beef on that basis.  It would probably win on chlorinated chicken too.

 If the UK conceded to the US on hormones and chlorination, this would create control problems at the border between the UK and the EU, wherever that border is in Ireland.

Either UK officials would enforce EU rules on hormones and chlorination on entry of beef or chicken to this island, or there would be a huge international court case.

All this shows that, in the absence of some sort of Partnership Agreement between the EU and the UK, relations could spiral out of control.

Ireland , and the EU, needs its best team on the pitch to ensure that this  does not happen!

GERMAN COURT SETS ITSELF ABOVE EUROPE

The Federal Constitutional Court (FCC) of Germany this week attacked one of the fundaments of the European Union, the primacy of Union law.  It is long settled practice that, in its field of operation, EU law has superiority over national law.

The FCC of Germany has also rejected the primacy of decisions of the European Court of Justice (ECJ), over decisions of national courts, on the meaning of EU Treaties.

The FCC has furthermore attacked the independence from the politics of any one country, of the European Central Bank.  It instructed the German Bundestag and  the German government to ensure that the ECB did a new analysis of its bond buying programme in light of the principles it laid down. Failing that, the ECB bond buying in question should not be applied in Germany, it said.

This is wrong. It is not the prerogative of any one EU country to instruct the ECB!

I remember how, at the Dublin EU Summit of 1996 which I chaired, Helmut Kohl defended the independence of the soon to be created European Central Bank. He did not want member states to be able to pressurize it to pursue loose monetary policies.

Now, A German Court wants a German government to interfere with the independence of the ECB, something that would have horrified Helmut Kohl.

The decision that  the German FCC announced this week was about the bond purchasing programme of the European Central Bank instituted by Mario Draghi to support the Euro in the wake of the 2008/10 economic crisis.  This bond buying programme was known as the PSPP.

The ECJ had found this PSPP programme to be legal under the EU Treaties, in a decision on 11 December 2018. The German Court this week flatly rejected this ECJ decision. It described it  as “untenable”.

It condemned it in the following terms;

“In its Judgment of 11 December 2018, the ECJ  held that the Decision of the ECB Governing Council on the PSPP and its subsequent amendments were still within the ambit of the ECB’s competences.

This view manifestly fails to give consideration to the importance and scope of the principle of proportionality (Art. 5(1) second sentence and Art. 5(4) TEU) – which applies to the division of competences between the European Union and the Member States – and is simply untenable from a methodological perspective given that it completely disregards the actual economic policy effects of the programme”

 The German Court added that the PSPP bond buying programme of the ECB is “ultra vires (beyond its powers) and not to be applied in Germany” and instructed the German authorities to this effect.

 It even criticised the methodology of the ECJ in reaching its decisions. A remark designed to annoy.

The EU can only work if its laws are interpreted consistently in all 27 EU member states. If a German Supreme Court can overrule the ECJ interpretation of the EU Treaties, so also could the Hungarian Supreme Court or the Polish Supreme Court.

 Soon we could  have 27 different interpretations of what EU law meant, and the EU Single Market would  quickly disappear!

The German Court did say that it was not making a decision about the more recent bond buying programme, introduced in the wake of the Covid 19 outbreak, and which is supporting countries like Italy and Spain, hardest hit by Covid 19.

 But the logic of the German FCC’s  decision this week clearly implies that it would also find against that programme too when, as is likely, the same German litigants bring a case against the new programme before the German courts.

A major showdown is now inevitable, at a time of maximum vulnerability for the European economy.

A robust answer must be given by the EU institutions to the German Court.

The Inter governmental Conference, including the then German government, that finalised the Lisbon Treaty in 2007 said, when it promulgated that Treaty ;

“In accordance with the well settled case law of the EU Court of Justice, the Treaties and the law adopted by the Union on the basis of the Treaties, have primacy over the laws of Member States, under the conditions laid down by the said case law”.

The European Heads of Government, including Angela Merkel, must urgently reaffirm that declaration, and declare their unequivocal support for the ECJ decision of December 2018, and for the independence of the ECB from the authorities of Germany, and from those of  any other EU state.

By undermining the ECJ, the German Court is providing a precedent that could be used by semi authoritarian governments in some EU states, who do not like some EU decisions on matters like the rule of law , academic freedom, or media pluralism.

To be fair, the doctrine underlying the German Basic Law is one which has democracy, and respect for democratic procedures, at its centre. The German Federal Constitutional Court has frequently defended the democratic prerogatives of the German Federal State.

 It has, however, failed adequately to recognise that the EU is a democracy too.

 It has an elected Parliament, to which the ECB accounts for itself.

 That is where German concerns should be pursued, by political means, and not by mischief making court cases, decided by judges who set themselves above the European Union.

EUROPE NEEDS A POLITICAL HEART TO SUSTAIN ITS ECONOMIC BODY

Next Thursday’s European Council is seen by some as crucial to the future of the European Union as a political project.

President Macron of France has raised the stakes saying that unless there is agreement on a fund of 400 billion euros to mitigate the effect of the lockdowns across the EU and the Eurozone, both the Euro and the EU itself will be in danger. He says that

 “If we can’t do this today, the populists will win, today, tomorrow and the day after in Italy, in Spain and perhaps in France”

He is right to issue the warning, but there is a real risk that this sort of rhetoric will create a self fulfilling prophecy. Expectations need to be managed and false dawns avoided. 

Some of the populist criticism of the EU is misdirected, and needs to be contradicted.

 In fact the EU, as such, has responded quite quickly to coronavirus. EU institutions, like the European Central Bank and the European Commission, have acted much more promptly in response to cononavirus crisis of 2020, than they did to the Banking crisis of 2008 and the sovereign Debt crisis of 2010. This is in spite of the  huge handicap of having to meet by teleconference.

A proposal for a Coronavirus Response Investment Initiative has already been approved by the European Parliament and the Council and is in force as of the 1st of April. This will allow the use of EUR 37 billion under cohesion policy to address the consequences of the COVID-19 crisis.

It is not the EU institutions, but the Ministers of some of the member states of the euro, who have been unable to make decisions.  They are the ones who were unable to decide on Eurobonds, or an acceptable substitute.  It has been Ministers of the member states, not officials of EU institutions who have made undeliverable demands of, and used unacceptable language about, one another. It is competing nationalisms that have failed us so far.

Indeed this failure of competing national narratives was predictable. CO2 does not respect national boundaries and nor do deadly viruses. They transcend national boundaries, so the response to them must transcend national boundaries too.

The opposition to mutualisation of debt in countries like Germany and Netherlands is almost theological.  Eurobonds are a good idea but they are just another form of borrowing. The interest may be a bit lower but it is still a debt. Eurobonds cannot be set up quickly, and speed is important. The bond buying by the ECB, which is already under way, has been much more effective. It has eased the financial pressure on Italy and Spain, and bought time for the EU to come up with a more comprehensive recovery programme.

 The key here is the Recovery Fund, which was agreed in principle by the Finance Ministers of the Eurogroup last week. This Fund is to be aimed at providing funding, through the EU budget, to programmes designed to kick-start the economy in line with European priorities and ensuring EU solidarity with the most affected member states. 

Such a fund would be temporary, targeted, and commensurate with the extraordinary costs of the current crisis, and would help spread them over time through appropriate financing.  

The Summit on Thursday next will need to decide on the legal and practical aspects of such a fund, including its relation to the EU budget, its sources of financing, and on innovative financial instruments, consistent with EU Treaties. This is a huge task because the EU budget at the moment is only 1% of EU GDP, and is already committed to other things(notably agriculture). 

One solution might be for EU to borrow additional money, on its own account on a long term basis, and that a new, but temporary, EU tax to be agreed to in principle to provide a reserve from which these loans could eventually be repaid. An EU wide carbon tax to fund this is one possibility.  Of course this would be difficult to accept, but extra borrowing that is not backed by pre agreed repayment capacity is difficult to accept too!

Meanwhile we must all realize that a breakup on the Euro would also destroy the European Single Market. That will happen unless voters in all EU states think as Europeans, not just as nationals of their own state. 

 Without the euro there would be competitive devaluations of national currencies, and these could lead to retaliatory trade restrictions, which would destroy the Single Market.

 Oddly enough, it is the countries that are most resistant to mutualising debt who benefit most from being in the EU Single Market.

 The German based Bethelsmann Foundation has said 

countries like Germany, France, Belgium, Netherlands and Denmark benefit more strongly than regions in the southern and eastern periphery of Europe

 from the EU Single Market. 

President Macron is right to say that the political legitimacy of the EU is being challenged. 

Why is this?

 The reasons are psychological as well as political.

 The voters of EU countries rarely get a chance think as Europeans. They are never asked to vote on purely EU issues, and are not confronted with realistic choices about what the EU might do, and what it might cost them.

 European Parliament elections are really national popularity contests about national attitudes. So the EU becomes remote. The EU is “someone else paying”. It is “them” rather than “we”. 

That has to change if the EU is to have the necessary strategic and political depth to deal with crises like the one we are now going through. 

If the EU is to survive as a political project, it needs  to create a European democratic constituency that complements the democratic constituencies to which national leaders appeal. The EU needs a political heart to sustain its economic body.

A Conference on the Future of Europe is to be set up to look at that in the next few months. The EU Heads of Government should send a signal that they intend to take the need for genuine EU wide democracy seriously. 

Rather than rely solely on the European Parliament, whose members are all elected in national contests, we need an EU wide electoral contest, if we are to create an EU wide identity and EU wide democratic legitimacy.  

One way to do this would be to have the President of the European Commission elected by the voters of the EU. This could be done either by using the Single Transferable Vote, with which we are familiar in Ireland, or by a two round system like the one used in French Presidential Elections. Voters identify with personalities as well as policy programmes and it is personalities who can create the emotional bonds between European citizens, that are needed to make European financial bonds politically viable. Another (weaker) proposal would be to elect some MEPs from an EU wide constituency.

Next week will indeed be crucial for the European Union. It needs to get the economics right, but itals needs to get the politics and the psychology right too. Leo Varadkar will have a vital role to play.

WHERE CAN THE EU FIND THE AMMUNITION TO FIGHT A CORONA VIRUS INDUCED ECONOMIC SLUMP?

The Covid 19 outbreak, and its deep financial aftermath, will put the European Union under unprecedented stress over the next five years or more. Brexit will add to these tensions for some members, notably Ireland. It is a matter of vital national interest for Ireland, that the EU gets its response to the crisis right, and does not allow it to create dangerous social distancing between the states of the EU.

A crunch point will be reached next Tuesday when EU Finance Ministers must make vital short and long term decisions.

 The existing structure of the EU is unfitted to a crisis like this. The public expect the EU to act, but has not been given the EU the powers it needs to do so. 

Unlike the states of the EU, the EU itself has no capacity to borrow money, and no capacity to raise taxation. So it  often lacks the financial clout to take decisive action.

 The amount it is allowed to spend is a mere 1% of GDP, whereas EU member states can and do spend around 40% of their GDP.

Membership  of the EU has been enlarged to include populations who have radically different understandings of the obligations and responsibilities of EU membership.

 Some think EU membership is compatible with authoritarian systems of governance.

 Others think EU membership is about entitlements, without commensurate responsibilities.

 Yet others see the EU as a means of creating a sphere of influence and projecting national power. 

Some (like the UK) see the EU as just a trading arrangement, with few political obligations at all.

 Many see membership of the EU as a transaction, from which they should always gain more than they were giving up.

 The countries and regions that gain most from the EU Single Market, are either unaware of the gains, or mistakenly think it is all due to their own efforts.

 A recent study by the Berthelsmann Foundation showed that the big objectors to Eurobonds (Germany , Austria and the Netherlands) gain almost three times as much per capita from the EU Single Market as do the assumed beneficiaries of the Eurobonds, Spain and Italy!

 If the Single Market were to fail, the objectors would lose the most. But their national politicians fail to tell them this. Incidentally the study showed Ireland to be a big gainer from the Single Market.

Meanwhile the countries and regions that gain comparatively less from the Single Market resent this, and fail to acknowledge that they too are gaining from being in the EU Single Market, albeit a bit less than the others are gaining. Envy blinds some to reality.

Of course, these contradictory feelings are rarely expressed publicly, but they there under the surface, ready to emerge when a crisis happens and decisions have to be made quickly. 

Covid 19 has been such a crisis.

 The first reactions of some EU members were revealing, and deeply troubling.

On 4 March, France and Germany decided to block export of personal protecting equipment outside their own borders, even within the EU. This was done notwithstanding the fact that restrictions on export to other EU states are forbidden by Article 35 of the EU Treaty.

 Two days later, Italy requested an extraordinary meeting of EU health Ministers. This was declined, notwithstanding the fact that the health crisis was worse in Italy than elsewhere, and Italy (like Greece) had already borne the brunt of the refugee crisis, with little or no help from its EU partners.

 It took several days of pressure before the export bans were lifted, and 1 million German masks eventually did reach Italy. Meanwhile China scored a public relations coup by getting equipment to Italy, equipment that Italy’s EU partners had failed to supply. 

The Institute Montaigne, a French think tank said this episode will leave “deep scars” in Italy’s relationship with its EU partners north of the Alps.

The restrictions on economic activity, as well as the direct health and income support costs, arising from Covid 19 will dramatically increase the debts of all states in the EU. 

Assuming a 20% drop in GDP as a result of Covid 19, an economist in the Bruegel Institute in Brussels  has estimated that the Debt / GDP ratio of Italy could rise from 136% of GDP to 189%, that of France from 99% to 147%, that of Spain from 97% to  139%, and that of Germany from 59% to 94%. 

 As all these countries can expect their workforces reduce in the next 20 years, because of past low birth rates, this is a very troubling prospect. A way needs to be found to spread the  debt as widely as possible and as far as possible into the future.

One of the proposals made to do this is Eurobonds which would enable counties to borrow with a guarantee from all eurozone states. The interest rate might be lower but it is still just another form of borrowing. If Italy issued a Eurobond, it would still be increasing its overall debt, and might face a higher interest rate on its ordinary bond issues. Another objection is that it might take 18 months or more to get these Eurobonds up and running, and the markets need something quicker.

Another proposal is that distressed countries borrow from the European Stability Mechanism (ESM). Some believe that the ESM is too small for all that needs to be done. Others worry about the conditions that might be imposed.

Meanwhile the ECB continues to buy the bonds of member states. For example it owns 26% of all German government bonds and 22% of all Spain’s bonds. This bond buying by the ECB enables governments to continue borrowing, but its support is confined to members who are in the euro. It is using monetary policy to achieve the goals of fiscal policy, which is controversial.

I suggest a better solution would  be to allow the European Union itself to borrow, up to a limit of (say) 0.5% of the EU GDP, to spend exclusively on Covid 19 related expenditures. 

Article 122 of the Treaty already makes provision for the EU to give aid  to help states suffering from “natural disasters and exceptional occurrences” beyond the control of a member state or states. Covid 19 meets this criterion.

 But the EU is not using this power, because its budget is fully committed to other things. It has no room to respond to sudden emergencies.  It would have such room if it was allowed to borrow. This power could then be activated to allow direct transfers of funds to a state in acute distress because of Covid 19 or the like, without adding to the recipient state’s debt.

Doing this would require an amendment to Article 310 (1) of the Treaty. This article presently requires the EU always to run a balanced budget. This could be amended to allow borrowing  that was confined to spending on matters, like Covid 19, that had arisen suddenly and were beyond the control of the state looking for help. Such a limited borrowing authority would command a lot of support from the electorate.

It would also be borrowing under the democratic control by the Council of Ministers and  European Parliament, something that does not apply to bond buying by the ECB.

The EU faces is an unprecedented situation which justifies unprecedented actions.

DO TORY LEADERSHIP CONTENDERS UNDERSTAND WHY THERE IS AN IRISH BACKSTOP?

The Backstop is not just about the border. It is not a technical matter. It is not just about what happens at 200 crossing points.

It is about the people of Northern Ireland, and giving all of them (not just a majority) the freedom to be who they are, and a sense of belonging.

But the present debate in the UK Conservative Party about replacing the backstop, seems to assume that it is all about technical fixes and invisible border posts , and that some yet to be discovered combination of IT and lasers would remove the need for physical customs posts, and that would then solve the entire problem. That is a mistake.

The backstop is about far more than this.  It is a recognition of the fact that, in Northern Ireland there is a population some of whom feet they have exclusively British identity and allegiance, some of whom feel they have an exclusively Irish identity and allegiance, and some of whom combine these allegiances comfortably enough.

The backstop is a recognition of this fundamental divide, which has led to so much suffering in the past, and an attempt to sustain the arrangements that ended that suffering.

The Belfast Agreement of 1998 transcended these divisions through provisions for intense North/ South and East/West cooperation, that would allow all three groups, described above, to feel fully at home in Northern Ireland under any present, or future , constitutional arrangements.

This was easy to envisage as long as both parts of Ireland remained in the EU, because EU rules facilitated and underpinned free and easy cooperation both North/South and East/West.

In such a context, territorial “sovereignty” became less of an issue, because it was overlaid by structures of free cooperation enshrined in EU law.

Brexit changes all that in a radical way. It brings territorial sovereignty back into the centre of stage in a way that threatens the Belfast Agreement settlement in a deeply fundamental way. I believe that Theresa May came to understand this, and that that explains her acceptance of the backstop.

Most of those contending to take her place in the Conservative Party leadership do not seem to do so.

In the agreement of March 2019, the EU side has given the UK very strong assurance of its good faith in seeking to find an alternative to the backstop.

But that will only work if the UK side really understand why the backstop was put there in the first place.

I do not believe that the contenders for Conservative Party leadership have taken this on board.

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