Thursday, May 15, 2014

Presidential candidates, European federalism and Tony Giddens

These European elections promise to be difficult for the EU. Opinion polls are predicting a surge in support for anti-EU parties of left and right. Furthermore, if past elections are a guide to the future, voter turnout will fall again. It slid steadily from 63 per cent in the first European elections, in 1979, to 43 per cent five years ago. The European Parliament – despite gaining more powers through each successive treaty change – has failed to convince a majority of voters that it is an admirable or useful institution.

But despite these ill omens, many ‘federalists’ – who may be defined as those wanting a significant transfer of powers to EU institutions – are getting excited. This is because the European elections may, for the first time, determine the choice of the president of the European Commission. Each of the main pan-European political parties has chosen a designated candidate for that job. Many federalists hope and expect that the political party which gains the most votes will see its candidate anointed president. They believe that this method of choosing the president would make the EU more democratic: voters would see a link between the way they vote and the person running the Commission.

The designated candidates have engaged in a series of TV debates and claim to be offering voters a choice of Europes. But in fact the three most prominent candidates – the socialists’ Martin Schulz, the centre-right’s Jean-Claude Juncker and the liberals’ Guy Verhofstadt – are remarkably similar. They have spent much of their careers inside the Brussels system. Two are former Benelux prime ministers, and two are MEPs (Verhofstadt is both). Though there are minor differences among the three – such as on the degree of austerity that is desirable – they all want to shift more power to the centre. The real political argument in these elections is not between these three candidates, but between three approaches to Europe: the federalists, who want more of it; the sceptics, who want less of it (or none at all); and, in the middle, those who see the value of the EU but don’t want a lot more of it and hope that it can be reformed.

The proposal for the Commission president to be chosen through designated candidates is problematic: it would narrow the pool of talent from which the president can be drawn; risk damaging the Commission’s credibility as a regulator by making it more overtly party-political; and encourage voters to believe that the political colour of the president influences EU policy, only to disillusion them when they see this is seldom the case (these problems are explained by Heather Grabbe and Stefan Lehne in a CER policy brief).

Whatever the rights and wrongs of this method of deciding the president, the federalists who back it may end up disappointed. The EU treaties state clearly that the European Council chooses the Commission president, “taking into account” the results of the European elections. As far as many heads of government are concerned, this means that the European Council is merely obliged to choose someone from the party that wins the elections – so long as that person can muster a majority among MEPs. The European Council may end up choosing a president who is not a designated candidate – such as, on the left, Pascal Lamy, Enrico Letta or Helle Thorning-Schmidt; or, on the right, Enda Kenny or Donald Tusk.

Some federalists would then be disappointed. But they generally take a long view and, inspired by their faith, are often determined operators. Over the past 50 years, visionary federalists such as Jean Monnet and Jacques Delors have had their victories. The EU’s farm policy, trade policy, competition policy and single market are largely run on federal lines. The creation of the euro was their greatest triumph.

But from its inception the EU has been an uneasy compromise between federalists and ‘inter-governmentalists’ – those arguing that the member-states (who in practice tend to be led by the big ones) should set the agenda and take key decisions. They have ensured that matters such as foreign and defence policy, taxation and treaty change remain subject to unanimous voting, and thus under the sway of national governments.

The balance between these two schools of thought has remained fairly even over the decades. But in the past few years some authority has shifted to governments: the euro crisis has required member-states to find the money for bail-outs, which has enabled them (and Germany especially) rather than EU institutions to dominate the management of the eurozone. Meanwhile, among the EU institutions, the European Parliament has gained greater sway over some decisions, thanks to the Lisbon treaty.

Tony Giddens, one of Europe’s most eminent social scientists and a member of the House of Lords, makes a brave case for federalism in his recent book, ‘Turbulent and Mighty Continent: What Future for Europe?’ Its chapters on economic, social, climate and foreign policy include good arguments for the EU to take on a bigger role vis-à-vis the member-states. The book is weaker, however, on the EU institutions.

Giddens’ first error is to argue that neither the EU nor the euro can survive without an economic and political federation, and that a federation is feasible. Giddens calls not just for a bit more federalism, but a radical leap forward. He wants the direct election of the European Commission president, much more power for the European Parliament, and the Council of Ministers transformed into a senate.

Giddens seeks to give these ideas plausibility by citing the support of Commission President José Manuel Barroso for ‘political union’. But Barroso does not speak for the peoples or governments of Europe. Very few Europeans want federalism. Most of them do not believe that the further centralisation of power in Brussels and Strasbourg would solve their problems.

The creation of a federal system along the lines suggested by Giddens would require a new treaty to be ratified in 28 member-states. Several of them would hold referendums, including perhaps Germany. Belgium and Luxembourg would ratify a federal treaty quite easily but it is doubtful that that many other countries would. In Italy, France, Germany and Poland there are influential federalist politicians, but whether they could persuade majorities of their parliaments or electorates to vote for Giddens’ proposed federation is highly debatable.

There is not going to be a European federation. So it is lucky that Giddens’s belief that neither the EU nor the euro can survive without one is mistaken. However, he is right that in the long run a healthy euro requires some degree of ‘mutualisation’ (sharing of risk) between its members. And it is true that, in the recent negotiations over the EU’s banking union, Germany largely avoided commitments to recapitalise troubled banks in other member-states. Berlin has also ruled out the ‘eurobonds’ – collective borrowing by the eurozone – which Giddens thinks essential for the euro to hold together.

Nevertheless Germany has de facto accepted some mutualisation. The European Stability Mechanism, the eurozone bail-out fund, has €500 billion (it and other bail-out mechanisms have so far lent about €350 billion to countries in need); the European Central Bank’s Securities Markets Programme has spent more than €200 billion on government bonds; and that bank’s ‘bazooka’ (officially known as Outright Monetary Transactions) – if ever used – could spend much more on government bonds. It seems likely that, in any future eurozone crisis, Germany would accept as much mutualisation as was necessary to calm the markets.

The euro can thrive – or even flourish – without eurobonds or other major steps to an economic federation. But it will need an effective banking union, which in the long run will require a bigger resolution fund – with a larger contribution from Germany – than the €55 billion fund agreed by the EU in March 2014. A healthy euro also requires a relaxation of the austerity that Germany and the Commission have imposed on the heavily-indebted countries. It requires more structural reform in the southern countries, to improve their potential for growth and job creation. And it requires structural reform in Germany, too. Germany’s unbalanced economy, over-dependent on exports, suffers from low levels of consumption and investment. A more balanced German economy would help to fuel growth elsewhere in the eurozone. Finally, some of the public sector debts weighing down on the Southern European economies will have to be written off, or at least have their maturities stretched out into the very long term.

Giddens’ second error is to argue that, as the EU develops, ‘variable geometry’ – the idea that members can opt out of certain policies, and that smaller clubs can exist within the broader EU – will become impossible. He writes that every member-state will have to be involved in the same policy areas. If Giddens were right, the British would have no choice but to leave – for they will never join the euro or the Schengen area.

In fact the trend is in the other direction, towards variable geometry. Not every EU state takes part in defence policy, all of justice and home affairs co-operation or the euro. The treaty provisions for ‘enhanced co-operation’, allowing sub-groups to proceed without the rest of the EU on particular laws, are starting to be used. Enhanced co-operations on the European patent and on cross-border divorce now exist, while others are being mooted for the financial transactions tax and the European Public Prosecutor.

Like many federalists, Giddens assumes that most of the ten EU countries not in the euro will join it soon. Yet apart from Lithuania, none of the ten has taken even the first steps of preparing to join (such as entering the Exchange Rate Mechanism). It may be ten years or longer before Poland – which would need to change its constitution – joins the euro, and some of the others may never do so.

The debates between Juncker, Schulz and Verhofstadt, entertaining though they may be, will not determine the future of the EU. Politics in Europe remains largely national, which is why the European elections often fail to inspire and why greater accountability of the EU needs to come, at least in part, via national parliaments (see section 1.3 of the CER’s proposals on EU reform). If politicians want to build a more federal Europe around the euro, and fulfil some of Giddens’ vision, they will need to do a better job of explaining to voters how a loss of sovereignty will deliver significant benefits.

Charles Grant is director of the Centre for European Reform.

An earlier version of this article was published in the March issue of International Affairs.

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