A tighter fit for Europe7 min read . Updated: 10 Aug 2012, 06:49 PM IST
A tighter fit for Europe
A tighter fit for Europe
The European Council of 28-29 June made numerous important decisions both the public opinion and the financial markets were looking forward to. It adopted a Growth Pact, which sets the lines the member states and the European Union (EU) must follow during the years ahead in order to achieve sustainable and labour-intensive growth. Another decision concerned the European unitary patent, an issue the Belgian government has strongly focused on during the EU presidencies of respectively 2001 and 2010 and which now eventually has turned into a positive result. The Eurozone summit decided to ease the application modalities of the European Financial Stability Facility (EFSF) and of the European Stability Mechanism (ESM). As a result, financial aid to banks in difficulties will not have a direct impact on the level of indebtedness of the country these banks are established in. To put it otherwise, a concrete form of European solidarity, which is subject to a number of strict conditions, has been created in order to assist banks in difficulties.
This first report does not only provide a number of essential materials for the construction of a genuine “banking union" equipped with common monitoring mechanisms, common deposit guaranties and common rules for solving bank crises, it also suggests two other main ideas, which could prove determinant for the future development of the EU: firstly, the possibility for European authorities to intervene in national budgets, if these do not meet the goals agreed on at European level and, secondly, a medium-term prospect of the issuance of debt instruments (or “Eurobonds"). A genuine monetary union must be provided with solidarity mechanisms, either in order to get a common debt management (solidarity) or to be able to deal with emergency situations like the current one. This implies, however, that the expenditure will at least partly be submitted to common monitoring and that the eurozone as a whole agrees on the key aspects of the social and economic policy. That is the most important lesson all the policymakers have learnt from the creation of the euro in 1999, and especially from the current euro crisis. Indeed, it is almost unbelievable that it takes no more than a number of serious problems hitting a small economy such as the Greek one, to put the euro at stake. The dollar does not risk crashing because the Federal State of California has been highly indebted since years, does it? In other terms, EMU presents some construction errors, which must be addressed as soon as possible.
Shared responsibility as well as solidarity are two key words, which will steer the European debate in the few coming years. Some member states put more emphasis on elements of solidarity, while others attach more importance to monitoring mechanisms in order to have a closer look on expenditure (or extra expenditure requiring financial solidarity). No-one can tell which one is the most important, or which one should come first. It is like the chicken and the egg: which came first? The debate regarding this issue will go on, but this must not refrain us from paving the way, as soon as possible, for making the necessary decisions. In my opinion, both dimensions, therefore, should be developed analogously and it is in Rompuy’s best interest to draw up a meticulously detailed plan by December 2012, according to the request the European Council made at the end of June, as to show to both “schools" that their points of view have been seriously taken into account.
What I particularly like in the present first version of this report, is that it undeniably sets the first steps towards a federal EU, a concept which I am all for. What does it mean concretely?
Firstly, a federal structure allows the competences to be exercised at the appropriate level: either local, national, subnational (regions) or European. A federal structure is by no means aimed at centralization, well on the contrary: all the competences of a public authority are exercised on the most appropriate and relevant level, according to the subsidiarity principle.
Furthermore, a European federal structure also must be provided with the necessary means and the appropriate structures to enable it to make decisions in an efficient and democratic way. The existing European budget is solely made up of about 1% of the gross domestic product (GDP) of all the EU member states. Although the comparison with the US might be a little hazardous, it is interesting to find that the American federal budget represents about 22% of the GDP of the US. Important talks are currently taking place in the EU in order to determine both the size and the structure of the European budget for the period 2014 to 2020. Unfortunately, it seems unlikely that the budget will much increase in size in the coming years.
Decision-making structures, which fit in a federal construction, are another basic component of our future EU. In the long term, the Commission should become a real government in charge of European governance. Its president will be chosen by the European Parliament following a procedure which is very much comparable with the current procedure as laid down in the relevant European law. (The Treaty on the Functioning of the European Union, also known as the Treaty of Rome.) In order to increase the effectiveness of the Commission and to concentrate on the genuine European interest, the principle that each member state is entitled to a commissioner in the College, should be abandoned. The legislation section should be made up of two chambers: one chamber representing the citizens, namely the European Parliament, and another chamber representing the member states. The council of ministers, which already exists, must progressively convert into a chamber of states, in which there is also room for the heads of government, i.e. the current European Council. A reflection group of 11 ministers of foreign affairs, set up at the initiative of the German minister Guido Westerwelle, and in which I also participate, has been exploring these main themes. In October, we will publish a final report.
Finally, the various levels of government in a well-functioning federal system are interconnected in order to avoid internal contradictions, a requirement that must be met on European level too, where common goals or tracks should be determined with regard to budgetary as well as socio-economic policies. In order not to endanger EMU by intolerable budgetary deficits or macroeconomic discrepancies, the member states will have to strictly hold to this scheme, notwithstanding the fact that within the framework of the agreed tracks or goals, they will enjoy relative freedom to put their own accents. As we witness in Belgium, it will be a delicate task to strike the right balance between the federal European government and its member states. Ideally, the European level only takes action when the member states are unable or unwilling to reach the objectives. In Rompuy’s report, some elements clearly point to this evolution: “ …the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval. Subsequently, the euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness."
In such a structure, different kinds of solidarity should be developed next to a common responsibility: the European budget is an essential instrument for the growth strategy of the EU and for the development of less-favoured areas or for a certain redistribution among member states. As I mentioned before, this budget is very small for the time being, but there is still room for expansion. Financially, solidarity mechanisms to protect the banks are feasible. The upcoming so-called Banking Union will provide a solution in this matter. The sovereign aid funds that have been created over the past few years, among which the soon to be launched ESM, can assist member states or major financial institutions in extreme crisis situations. Finally, also on the European level this evolution towards an increased common budgetary responsibility could lead to the emission of debt instruments (Eurobonds) by a common treasury, managed by a European minister for finance. Although this sounds like a faraway future, the preparations have actually started today.
This way, a true political EU will take shape, with actual elements of shared responsibility, sovereignty and solidarity. Only federal management mechanisms can guarantee that efficient and democratic decisions, respectful of the member states’ or their regions’ own competences, are made on the European level. This fascinating debate, which is extremely important for the well-being and prosperity of our citizens and of our country, is now taking place. I do hope that Belgium will be able to fully participate in this major debate, so as to safeguard its future in a new federal Europe.
Didier Reynders is deputy prime minister and minister for foreign affairs of Belgium. Comments are welcome at email@example.com