The Euro-crisis and the suitability of the European institutional framework [en]

5 luglio -

dracma

 

Introduction

 

When Gramsci wrote that a crisis consists in the old dying and the new that cannot be born yet, he certainly did not have the European Union (EU) in mind. Yet, the “interregnum” he referred to, in which a variety of morbid symptoms appear, has also been the culmination of a paradoxical and overly complicated institutional system that is unique to the Union. The limbo the continent is stuck in at the moment makes it so that the EU cannot go forward without dragging its past burdens along. In this sense, the Euro-crisis represents the epitome of the incapacity of European policy-makers to overcome their cooperation problems while at the same time having to deal with unresolved issues. In particular, the Greek debt crisis, brought to the fore a distributive conflict that had always been implicit within the EU’s monetary union (Oatley, 2014): who would bear the cost of Greece’s excessive burden debt? Dinan’s optimism of the “impressive display of unity” shown by the European leaders (Dinan, 2010: 160) may not mesh well with the institutional reality of the EU. Here, I will argue how the European institutional framework may not be suitable for overcoming the crisis.

 

The European institutional framework and EMU

 

The Lisbon Treaty has created a four-sided institutional framework (S. Fabbrini, 2014) in which the supranational (i.e. the Commission and the European Parliament) and intergovernmental (the Council of Ministers and the European Council) natures of the EU intersect. In this space, these four institutions play their bargaining game, supervised by the Court of Justice (ECJ). As a result, the basic institutional structure of the EU is extremely stable, and a system of checks-and-balances ensures there are very few losers (Hix, 2007: 142), since an overwhelming consensus is needed in order to pass legislation. In this policy-making framework, European Monetary Union (EMU) sits on the fence. As a matter of fact, EMU itself is a misnomer: whereas a monetary union does exist, not only its geographical space does not coincide with that of the EU, but also there is no full economic union either (Dinan, 2010: 395). The intergovernmental logic of the latter is indisputable (S. Fabbrini, 2015b; 2014): while TFEU Article 3.1 puts monetary policy under the exclusive competence of the Union, TFEU Article 119 declares that “the adoption of an economic policy […] is based on the close coordination of Member States’ economic policies”. The pooling of sovereignty means that no single institution is solely responsible for economic policy. Such an arrangement, however, puts a great deal of power in the hands of the intergovernmental institution charged with economic policy-making powers, namely the ECOFIN Council.

 

What is worse, however, is the very development of EMU, cursed since its conception to be a half-fulfilled project. Without delving into the history of EMU, two are the points to underline: why EMU has been created, and why it may never achieve its goals. It goes without saying that the latter is an effect of the former. There are two reasons why EMU has seen the light of the day. The first reason is purely historic (or at best political) and is rooted in the 1957 Treaty of Rome. Already in the Preamble it is declared that the signatories were determined to “lay the foundations of an ever-closer union among the peoples of Europe”. The second reason is economic, and relates to the cost-benefit rationale. As Padoan explains well in his essay, benefits from monetary integration stem from three sources: the elimination of transaction costs, the elimination of the risk of currency volatility, and the acquisition of policy credibility (Padoan, 2007: 41). In the fashion of Buchanan, Padoan considers regional arrangements as clubs: enlargements of the organisation bring about asymmetries. As such, marginal benefits decrease as club size increases, and enlargement must be kept in check by some criteria (Padoan, 2007: 43). For the Eurozone there are the so-called Maastricht parameters. This second reason in particular explains why EMU may never achieve its goals. During the last stage of EMU, in 1999, some countries were allowed to “opt-out” of the adoption of the common currency. With the subsequent enlargements of the new millennium, seven new Member States have taken upon the task of adopting the euro as their currency. This had two consequences. First, following Padoan’s reasoning, it increased the marginal costs of the “euro club”. Secondly, and most important, it “formalised the existence of different economic and monetary regimes within the EU” (S. Fabbrini, 2015b: 48). The Union was now divided between “ins”, those countries that adopted the euro; “pre-ins”, those committed to meeting the criteria for adopting the euro; and the “outs”, who, regardless of the criteria, chose to stay out of the Eurozone (namely Denmark and the United Kingdom, de jure, and Sweden, de facto) (S. Fabbrini, 2015b; De Schoutheete and Micossi, 2013; Majone, 2014). In this sense, the EU has become not just a mere multi-speed system, but also a multi-level one, which makes the relationship between EMU countries and non-EMU countries ambiguous (De Schoutheete and Micossi, 2013).

 

 

The anti-crisis policies: doing whatever it takes?

 

What were the policies adopted to counter the crisis? In the past five years, a number of measures have been put forward, such as the European Financial Stability Facility and the European Financial Stability Mechanism in 2010, which merged into the European Stability Mechanism (ESM) in 2011; the European Semester; the Euro Plus Pact; the Six-Pack and the Two-Pack; and, more recently, the Quantitative Easing and Banking Union (attempt). I will not discuss them one by one. Rather, I am going to focus on two events that took place in 2012, which I consider here as a crucial year in the solving of the crisis.

 

In March, twenty-five out of twenty-seven Member States signed the Treaty on the Stability, Coordination, and Governance in the Economic and Monetary Union (TSCG), also known as Fiscal Compact. In short, the TSCG: designed a very detailed balanced-budget rule (the so-called “golden rule”); forced Member States to incorporate the rule in their legal system through the highest domestic source of law; subjected the implementation to the supervision of the ECJ; and made the respect of the golden rule compulsory to obtain financial assistance under the ESM (F. Fabbrini, 2013: 36-7). A few months after that, ECB President Mario Draghi delivered a speech in which he declared that the ECB would do “whatever it takes to preserve the euro”. This landmark speech is important for at least two reasons: the first one is that it had a “credible commitment effect” on market forces, as shown by the fact that the 10-year bond rate on Spanish bonos dropped as much as 39 basis points in the following days. The second reason is that it showed that the ECB was not afraid of using unconventional tools, or the European leaders of going beyond the institutional limits.

 

What is important to underline here is the relationship between the characteristics of some of these policies (namely, the Fiscal Compact) and the legal framework in which the actors moved. First of all, both the ESM and the Fiscal Compact were intergovernmental treaties, that set up new organisations where “unanimity [was] no longer needed for decision-taking” (S. Fabbrini, 2015b: 56). Secondly, the Fiscal Compact in particular, imposed conditions that are nowhere to be found in a standard international treaty, such as the implementation of the golden rule at the highest level of law. And finally, the qualified majority of twelve contracting parties (out of the seventeen euro-countries) for allowing the TSCG to enter into force is very unlikely any intergovernmental treaty (S. Fabbrini, 2014). In sum, this means two things: the intergovernmental decision-making regime has paradoxically curtailed the political discretion of national governments, by introducing these automatic legal measures; and that intergovernmental institutions had to recognise “the need to rely on third actors (the ECJ or the Commission or the ECB) to keep contracting parties aligned” (S. Fabbrini, 2014). All these derogations and compromises, therefore, raise the question of how adequate the framework established by the Lisbon Treaty is for economic governance within the EU.

 

 

The suitability of European economic governance

 

The most striking feature of the institutional framework described above, and the way European leaders (both at the level of Member States and European institutions) dealt with the crisis, is the complete absence of the European Parliament (EP). Not once has the EP been mentioned as a proactive actor in the treaties and the policies adopted to overcome the crisis. Why is it, and what does it mean in terms of the adequateness of the European institutional framework? First of all, although the approach to the crisis was clearly intergovernmental rather than supranational, this does not mean that Member States were given a blank cheque with regard to crisis management. Au contraire, as the experience of the Fiscal Compact shows, national governments have been constrained in economic policy- and treaty-making. What is relevant, instead, is the formation of “permanent decision-making institutions representing the coordinated interests of national governments within the institutional system of the EU” (S. Fabbrini, 2015b: 128). It is clear, then, that a purely intergovernmental Union cannot face the triple challenge of effectiveness, legitimacy, and systemic stability.

 

The particular (con)fusion of powers typical of the EU has limited the effectiveness of its action, while at the same time casting doubts about its legitimacy. National leaders have tended to eschew more democratic solutions, by systematically excluding the EP from crisis management: as a matter of fact, it is the very legal framework of EMU that does not leave any room for parliamentary action. But why is it that economic policy-making is today so heavily subjected to the intergovernmental method? Majone (1998: 17) contends that so long as the delegated tasks are narrowly defined, no real legitimacy problem arises and output efficiency is enough to counterbalance the lack of the former. However, economic policies include particular fields that are at the core of national sovereignty. Leaving all the work to designated agencies or institutions would severely impinge on the capacity of the Member States to retain this speck of authority. EMU, he argues, had been designed to fit harmoniously within the institutional framework of the EU (Majone, 2014: 1222), but as the crisis deepened and the performance plummeted, it was clear that such a harmonious fit was no longer sustainable. What is more is that the priority given to the rescue of the Eurozone countries as opposed to non-euro Member States has the potential of driving a wedge between EMU policies and single market policies, favouring the former at the expense of the latter in the process of integration (Majone, 2014: 1222). This is not to say that it could create a multi-speed Europe; rather, it is far more likely that the EU could become a “club of clubs”, with EMU being transformed in a de facto “club good”.

 

 

Conclusions

 

Three are the lessons that could be drawn from the crisis. The first lesson is that the aforementioned wedge is due to institutional constraints rather than an antagonism between bigger Member States and smaller ones. It would be hardly conceivable for the likes of Germany to derive pleasure from enacting beggar-thy-neighbour policies. Of course when countries are part of a regional arrangement (that is to say virtually every country in the world), whatever the policy field, governments always have to play Putnam’s two-level game, carrying out domestic and international negotiations simultaneously. As such, the range of policy outcomes at the European level is subject to change depending on the political leaning of the domestic and supranational leaders (Hix, 2007: 150). This is because, as Tsebelis and Garrett (2001: 384) pointed out, it is institutions that determine the available choices of actors, as well as affecting their strategies, and by extension, the outcomes of their interactions. Very succinctly: “institutions matter”.

 

The second lesson concerns the possibility of finally achieving economic union, which, as has been shown, is still quite a ways from being such. Majone (1998: 5) believes economic integration without political integration is possible “only if politics and economics are kept as separate”, but today the EU is engaged in a wide range of redistributive policies that make it very difficult to keep economics and politics separated. Whether political union is achieved by means of spillovers or by means of bold political steps is one thing. Whether, instead, political union could be a sure-fire way of minimising crisis risks, is a question of utmost importance in the study of European integration.

 

Exactly the institutional future of the Union is the last lesson coming from the Euro-crisis. If, on the one hand, intergovernmentalism by itself has proven limited as a solution to the crisis, due to its reliance on the Commission for the supervision and implementation of the policies in order to make credible commitments, supranationalism seems to be no better viable way of crisis management – or even, prevention. In fact, as Fabbrini (2015a: 582) remarked, a parliamentary Union would have a hard time coping with the structural asymmetry and cultural differentiation of its Member States. Different scholars have put forth different solutions to the institutional crisis. Some of them are very different, ranging from default (Majone) to “presidentialisation” (Fabbrini), and from pure intergovernmentalism (Moravcsik) to full parliamentarisation (Hix) or even some sort of “Federation lite” (Bonino). I will not weigh on the feasibility of such proposals, but we can see that all of them have something in common: while something is certainly dying, what is to come cannot be born yet.

 

References

 

De Schoutheete, P. and Micossi, S. (2013). On Political Union in Europe: The changing landscape of decision-making and political accountability. CEPS Essays.

 

Dinan, D. (2010). Ever Closer Union: An Introduction to European Integration: Palgrave Macmillan.

 

Fabbrini, F. (2013). The Fiscal Compact, the ‘Golden Rule’ and the Paradox of European Federalism. Boston college international and comparative law review 36: 1-38.

 

Fabbrini, S. (2014). Beyond intergovernmentalism: The puzzle of European economic governance. In: Rodrigues M. J. and Xiarchogiannopoulou E. (eds) The Eurozone Crisis and the Transformation of the EU Governance: External and Internal Implications. Ashgate.

 

Fabbrini, S. (2015a). The European Union and the Puzzle of Parliamentary Government. Journal of European Integration: 571-86.

 

Fabbrini, S. (2015b). Which European Union?: Cambridge University Press.

 

Hix, S. (2007). The European Union as a polity (I). In: Jørgensen K. E., Pollack M. and Rosamond B. (eds) Handbook of European Union Politics. SAGE, 141-58.

 

Majone, G. (1998). Europe’s ‘democratic deficit’: The question of standards. European law journal 4: 5-28.

 

Majone, G. (2014). From Regulatory State to a Democratic Default. JCMS: Journal of Common Market Studies 52: 1216-23.

 

Oatley, T. H. (2014). International political economy: Pearson.

 

Padoan, P. C. (2007). The Political Economy of New Regionalism and World Governance. In: Telò M. (ed) European Union and New Regionalism: Regional Actors and Global Governance in a Post-Hegemonic Era. 2nd ed.: Ashgate.

 

Tsebelis, G. and Garrett, G. (2001). The institutional foundations of intergovernmentalism and supranationalism in the European Union. International Organization 55: 357-90.