Europe in the 21st Century
Content
THE EUROPEAN UNION
IN THE 21ST CENTURY
PERSPECTIVES FROM THE LISBON TREATY
EDITED BY
STEFANO MICOSSI AND GIAN LUIGI TOSATO
INTRODUCTION BY
SABINO CASSESE
CENTRE FOR EUROPEAN POLICY STUDIES
BRUSSELS
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CONTENTS
Preface............................................................................................................................ i
1. Introduction: Im Zweifel für Europa
Sabino Cassese .......................................................................................................1
1. The European Union: Reasons for success ..................................................1
2. The crisis and its paradoxes...........................................................................2
3. A realistic agenda............................................................................................4
Part I. Economics and Consensus
2. Partisan Protectionism: Political Consensus, the Euro and Europe’s
Response to the Global Crisis
Carlo Bastasin .......................................................................................................7
1. A crisis in consensus.......................................................................................8
2. A crisis in politics ..........................................................................................13
3. The euro as trigger – two examples: Germany and Italy ........................16
4. Protection versus protectionism .................................................................19
5. Welfare ...........................................................................................................23
6. Beyond partisan protectionism ...................................................................28
References .............................................................................................................30
3. A More Social EU: Issues of where and how
Maurizio Ferrera & Stefano Sacchi...................................................................31
1. The need for a more social European Union.............................................31
2. How to build a more social EU ...................................................................34
3. Supplementing the internal market with social rights ............................36
4. Less rhetoric, more forward-looking initiatives .......................................43
References .............................................................................................................46
4. Economic Policy Coordination and Failures in Europe to counter
Recession
Fiorella Kostoris..................................................................................................48
Introduction..........................................................................................................48
1. When is coordination appropriate?............................................................49
2. Economic policy coordination under pressure .........................................52
3. A case study of the Stability and Growth Pace ........................................ 54
4. Effects of the financial crisis........................................................................ 61
5. Conclusions ................................................................................................... 62
References............................................................................................................. 65
Annex.................................................................................................................... 67
5. Market Integration and Competition Policy: The Challenges Ahead
Ginevra Bruzzone & Luigi Prosperetti ............................................................ 72
1.
2.
3.
4.
Introduction................................................................................................... 72
Becoming closer to citizens ......................................................................... 76
Stable principles and integration of structural policies........................... 80
The proper degree of harmonisation ......................................................... 81
4.1 Supranational regulation .................................................................. 81
4.2
Common rules for products ............................................................. 84
4.3
Commercial relations between business and consumers ............. 86
4.4
Common rules for services ............................................................... 86
4.5
...including network industries ........................................................ 87
5. Coordinated implementation ..................................................................... 90
6. Conclusions ................................................................................................... 95
References............................................................................................................. 96
6. Energy and European Institutions
Valeria Termini.................................................................................................... 98
1. Background ................................................................................................... 98
2. European Institutions: A necessary but insufficient precondition.
From Euratom to the Lisbon Treaties ........................................................ 99
3. European strategy and domestic policies: Goals, conflicts
and proposals.............................................................................................. 105
4. Europe’s relationship with the rest of the world: Energy security
and climate change..................................................................................... 111
5. Conclusions ................................................................................................. 116
References........................................................................................................... 118
Part II. The International Projection
7. Europe on the International Scene: A Union of necessity after a Union
of choice?
Cesare Merlini ....................................................................................................120
1. The international context ...........................................................................123
2. The Union’s Internal Context ....................................................................128
3. Suggested guidelines for a non-marginal common foreign policy......133
4. The instruments for the EU to achieve a high-profile foreign policy ..137
References ...........................................................................................................140
8. The Enlargement of the European Union
Rocco A. Cangelosi & Ferdinando Salleo ......................................................142
1. European enlargement and vision............................................................142
2. Recent admissions and new candidates ..................................................144
3. The Western Balkans ..................................................................................147
4. Turkey...........................................................................................................149
5. The borders of Europe................................................................................152
6. Europe’s identity.........................................................................................154
7. Enlargement in 2009 ...................................................................................157
8. After the Lisbon Treaty ..............................................................................159
References ...........................................................................................................161
9. European defence or defence of Europe?
Alessandro Pansa ..............................................................................................162
1. The institutions: A past of great hopes, a future with no illusions ......162
2. The industry: Oligopoly, foreign policy and internationalisation .......168
3. Europe: Cooperation, inefficiency and nationalism...............................172
4. Governments, institutions and investors: A changing role ..................175
5. Industrial structures, control systems and the equity market ..............177
References ...........................................................................................................181
10. Europe and Global Economic Governance after the Crisis
Pier Carlo Padoan .............................................................................................182
1. The breakdown of Bretton Woods II and beyond ..................................182
2. Keeping markets open in investment and trade.....................................186
3. Europe and the United States as ‘global regulators’? ............................188
4. Macroeconomic governance......................................................................192
5. Conclusions..................................................................................................197
References ...........................................................................................................198
Part III. The Institutional Framework
11. From a Community based on the Rule of Law to the European Union
as a Community of Rights
Mario P. Chiti.................................................................................................... 201
1.
2.
3.
4.
A community based on the rule of law ................................................... 201
Issues posited in the original 1957 EEC Treaty ...................................... 203
Developments subsequent to the 1992 EU Treaty ................................. 205
Roles played by the Council of Europe and the European Convention
on Human Rights ....................................................................................... 207
5. The 2007 Treaty and the recent Treaty of Lisbon................................... 208
6. The Constitutional Court in Italy and Europe’s international
obligations ................................................................................................... 209
7. Pending issues ............................................................................................ 211
8. Protecting rights – The EU’s basic remit ................................................. 211
References........................................................................................................... 212
12. Democracy in the European Union
Stefano Micossi ................................................................................................. 214
1. The need for democratic legitimisation................................................... 217
2. Control and democratic legitimisation mechanisms ............................. 221
2.1 Elections and referendums ............................................................. 222
2.2
The role of national parliaments .................................................... 223
2.3
Control and democratic legitimisation at the Union level ......... 225
2.4
Popular legitimisation and constitutionalism .............................. 228
3. Legitimisation through substantive Community action....................... 230
3.1 Opening new areas for decision-making in the Union’s
policies ............................................................................................... 231
4. Conclusions ................................................................................................. 232
References........................................................................................................... 233
13. Trail-Blazing Developments in Justice and Home Affairs
Giacinto della Cananea ................................................................................... 236
1.
2.
3.
4.
5.
The problem: Losing control over territory and individuals ............... 237
The European rescue of police powers?.................................................. 238
An area of freedom, security and justice................................................. 240
From the Laeken Declaration to the Lisbon Treaty ............................... 243
Issues of efficiency and safeguards.......................................................... 245
6. Future Prospects: ‘Choral’ cooperation and trail-blazing initiative.....249
7. Implications for checks and balances.......................................................251
8. Implications for the Union’s Foreign Policy............................................253
References ...........................................................................................................254
14. The Role of Parliaments in the Democratic Life of the Union
Andrea Manzella ...............................................................................................257
1. The democratic principles of the Union and national parliaments
within the European parliamentary system............................................257
2. The political nature of the subsidiarity and proportionality
principles......................................................................................................262
3. The irresistible political expansion of proportionality control .............264
4. The improper interaction of quorums......................................................266
5. Conclusions: Early warning for the early warning ................................270
References ...........................................................................................................270
15. The Shape of post-Lisbon Europe
Gian Luigi Tosato..............................................................................................271
1. The new Treaty’s structure ........................................................................271
2. A simplified and re-organised system .....................................................272
3. The ‘constitutional’ issue ...........................................................................275
4. Institutions and decision-making efficiency ...........................................276
5. Three candidates for the role of Mr (or Ms) Europe ..............................278
6. The market: Between competition and general interest ........................279
7. A foreign policy for the Union? ................................................................280
8. Two conflicting concepts ...........................................................................282
9. A look into the future .................................................................................283
References ...........................................................................................................285
About the Authors...................................................................................................286
PREFACE
E
ventually, after fifteen years of agonizing negotiations among the
member states and at times dogged resistance by segments of
European society, the European Union has reached a form of
constitutional settlement with the Treaty of Lisbon.
The new Treaty brings important changes to the European
construction, including a significant expansion of common policies decided
by the Community method, a stable President for the European Council, a
strengthened framework for external policies, more transparent and
effective decision-making and strict safeguards of subsidiarity.
Even in the wake of the new Treaty, however, the Union remains an
entity in flux, in search of its destiny. Further institutional progress is by no
means excluded, but it will have to be achieved explicitly rather than
brought about by stealth. The presence among the member states and in the
European Parliament of political forces staunchly opposed to further
deepening of the Union makes the prospect of increased use of enhanced
cooperation more likely.
Ultimately, the fate of the Union depends on its ability to respond to
the needs of its member states and its citizens in providing external and
internal security and economic prosperity in a global context of mounting
economic and political instability, where the centre of gravity of world
governance and strategic decisions is likely to continue to shift away from
Europe and towards the Pacific and emerging economies.
Against this background, the essays in this volume analyse changing
equilibria in common policies, institutional settings and legitimisation
mechanisms of the European Union, which are being brought about by the
new Treaty, and sketch out possible scenarios for the 21st century. The
essays are organised in three sections devoted in turn to economics and
consensus, international projection of the Union and the new institutional
framework.
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ii | PREFACE
The contributors to this collection are all members of EuropEos, a
multi-disciplinary group of jurists, economists, political scientists and
journalists who first came together in 2002 to contribute to the deliberations
of the European Convention and have developed into a permanent forum
for the discussion of European institutional issues.
The views expressed in the essays in this volume are not always
concordant, but they stem from a common commitment to the European
construction. The title of the introductory essay, Im zweifel für Europa, is
there for a reason.
Stefano Micossi and Gian Luigi Tosato
1. INTRODUCTION:
IM ZWEIFEL FÜR EUROPA
SABINO CASSESE
1.
The European Union: Reasons for success
The European Union represents the most successful establishment of a
supranational system of government since the large empires of the past (the
Holy Roman Empire or the Spanish, Ottoman, Habsburg and British
Empires).
But none of these multinational structures developed in such a short
space of time as the European Union, which in half a century has gone from
being an association of 6 to 27 country states, from an economic union to a
political union. And none of the structures that came before – unlike the
European Union – was the product of a voluntary and equal association of
nations, as opposed to a structure that coalesced around a dominant nation.
The Union has a third original feature as well. It unites states, but not
on the basis of their traditional functions – defence, public order, justice,
relations with foreign countries, budget – but on the basis of an element
that is potentially external to the state, namely the market. That said, the
European Union ends up exercising influence over traditional state
functions as well: thus, it may not dispose of large sums of money (in terms
of budget, it is dwarf-like), but it sets standards regarding states’ spending
power; it may not be responsible for public order, but it grants freedom of
movement to European citizens; it may have little influence in defence
matters, but it has guaranteed peace in Europe.
A fourth original feature of European construction is its support of
nation states that internal centrifugal forces (separatism, regionalism)
might otherwise fragment. National unity becomes necessary because of
the need for dialogue, the need to speak with one voice with other nations.
From this standpoint the traditional vision of a Union perpetually in
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2 | SABINO CASSESE
conflict with its member states is turned around, and another emerges, that
of a Union helping to strengthen national interests.
Fifthly, after barely half a century, the Union has become one of the
pillars of a multipolar world. Most of the 350 cases submitted to the World
Trade Organisation’s Dispute Settlement Body involve disputes between
the European Union and the United States. Conversely, in global fora,
worldwide agreements are often based on an understanding between the
United States and the European Union. The presence of the Union therefore
helps preserve global plurality.
Sixthly, despite its rapid pace, the Union’s development has been
very much in accordance with the 19th century ‘revolution in government’
mode, i.e. gradual: when a problem emerges, a solution is sought that is
then shown to be flawed and incomplete, requiring correction, etc. Or
solutions devised for one sector are transposed to another where they
generate effects that are in part unintended and require adjustment. All this
occurs in a self-feeding process, provoking angry tirades on the part of
those who see in it nothing but the progress of bureaucratisation. The
incorporation of successive compromises has built into Europe’s legal
system a rationale for slowness, but it has also encouraged a rationale for
the ‘essentiality’.
Finally the European Union crosses state barriers on a daily basis, in
its quest to induce domestic reform. Domestic reform stems from a
common European denominator (communications liberalisation, for
instance), wherein it finds inspiration, but it ends up producing different
outcomes, at a different pace. Hence the unstable balance between
uniformity and differentiation, European solutions and domestic outcomes,
the latter bearing the mark of local culture, style and institutions.
“Im Zweifel für Europa” (When in doubt, favour Europe) read the
headline of a German paper a few years back, summing up the strength
that has presided over Europe’s development and led to its becoming the
main point of reference for politics in Europe today.
2.
The crisis and its paradoxes
Despite the Union’s growing status as a world power and its increasing
activity (evidenced by the reams of regulations produced daily by its
numerous bodies), the standstill dealt by the Constitutional referenda held
in France and the Netherlands and in Ireland over the Treaty of Lisbon
induced a phase of apathy where the prevalent concerns focused on
INTRODUCTION: IM ZWEIFEL FÜR EUROPA | 3
fragmentation and the prospect of a 27-gear Europe (and thus, a loss of
collective momentum).
Yet even this critical phase is on various accounts paradoxical. There
are those who deplore the Union’s ineffectiveness not because it does too
much, but mainly because it does too little. It is argued that it should
intervene more pointedly in immigration, world trade, international
terrorism, the environment, energy. At stake are functions that states
cannot perform alone. Therefore, more Europe – as they say – is needed.
There are those who deplore the ineffectiveness of the Union’s
decision-making processes, ascribed to the facts that so many decisions
require unanimity, the Council President’s term is too short and Europe has
difficulty in speaking with one voice vis-à-vis the rest of the world.
European construction appears to be this machine ruled more by
procedures than by products. But the complexity of the decision-making
processes stems from the unavoidable compromises – as noted earlier –
that are needed to run the machine and are what makes it stand apart. A
driving force, not just a brake.
There are those who deplore the elitist character of the European
construction: it brings together politicians, bureaucrats, business leaders.
But in recent years citizens have been called to select who will represent
them in the European Parliament and the referenda have at the very least
involved many citizens in a European decision. So the Union is not an
overblown superstructure set up by the ruling classes. The people too have
a voice, and a direct one at that. And if the people feel fear and try to slow
the process down rather than speed it up, one should try and understand
why, rather than lament the collapse of the whole edifice. And in the
meantime, steps should be taken to broaden and strengthen the ‘elites’ on
which construction has long relied, trying out at the supranational level all
the induction and socialisation tools that have helped establish national
elites over the last two centuries.
There are those who deplore the re-emergence within the European
Union of national interests, forgetting that its whole construction is based
on reciprocal concessions, which have produced multiple benefits that no
one can deny today. If a state decides to evade European constraints on a
point that might damage its position, it must also be prepared to lose
advantages specially tailored to its needs. This interplay of reciprocal
favours is strengthened by the various ways in which costs and benefits are
assessed by each individual nation and within each nation as well (favours
4 | SABINO CASSESE
and the benefits bestowed are not uniform), not to mention the fact that all
supranational legal systems fragment national interests (one need but
consider the conflicting interests of the retail and the textile industry in the
face of expanding world trade).
Finally, there are those who deplore the fact that the Union has two
governments and that the Commission is not fully answerable to
Parliament. But this disregards the fact that in so doing, one is applying to
a new construct rules devised for the old (state legal and political) systems,
without first having investigated whether the new construct is not actually
generating new ways of making the executive accountable. In other words,
the dissatisfaction stems to a large extent from a defect in viewers’ vision.
All these ambiguities and paradoxes give rise to a tormenting doubt –
that the slogan Im Zweifel für Europa may no longer be appropriate.
3.
A realistic agenda
The ambiguity with which the failings of European construction (which are
in fact in part achievements, in part failings) are presented must not induce
inertia.
One may have to renounce the idea of a European Constitutional
Charter, but on the other hand there already is a European constitution. In
any event this does not mean that a number of improvements are not
required: in particular with respect to closer links between the Parliament
and the Commission, a stronger connection between the Commission and
the Council, a longer mandate for the Council President and a greater use
of majority (and qualified majority) voting.
If on the one hand the Union is called upon to take on new functions
and, on the other, it is still burdened with many other older ones, this does
not mean that it shouldn’t unburden itself through devolution to states,
and mainly to sub-national authorities, while retaining powers of control.
If the composite power and joint committee system strengthens the
Union but slows down its procedures, the decision-making process should
be redesigned not to make it less collegial, but to make it speedier.
If elites and the general public enter into conflict, this conflict has to
be changed into productive competition, into a balanced system of checks
and balances. That may produce, in other words, more guarantees, not
more conflicts.
INTRODUCTION: IM ZWEIFEL FÜR EUROPA | 5
And finally if national interests do fragment, steps should be taken to
encourage their multinational re-aggregation, which is good for Europe
(provided that it is not understood as a monolith, but as a network).
In other words, optimism should not lead to inertia. The strength of
European construction also lies in the fact that it has never stopped during
its first half century.
PART I
ECONOMICS AND CONSENSUS
2. PARTISAN PROTECTIONISM: POLITICAL
CONSENSUS, THE EURO AND EUROPE’S
RESPONSE TO THE GLOBAL CRISIS
CARLO BASTASIN
F
ar from providing an opportunity for better coordination, the global
financial crisis has accentuated national differences among the
member states of the EU. Although in line with the principles
enunciated in the European Economic Recovery Plan, EU member states’
responses to the crisis have shown a low degree of coordination. The
impact of fiscal stimuli has not been coordinated even in the component of
the fiscal packages (one-quarter of the total, according to the European
Commission) carrying direct spill-over effects. In some cases, the amount of
stimulus has been kept at a low level in order to ‘free-ride’ other countries’
packages. Public money has been spent with an eye to support mainly local
domestic activities, even at the cost of lower fiscal multipliers. Non-export
industries, especially infrastructure, even though less affected by the crisis,
have been supported by governments, thereby increasing demand for nonelastic production that could more easily adjust through higher prices than
higher quantities, and actually resulting in a negative welfare effect.
Requests for banking transparency – and supervision – have caused
uneasiness among national regulators and policy-makers. Banking
opaqueness has been protected by national governments. There has not
been an agreement on stress-testing, recapitalisation or restructuring of the
financial system. The threat is still lingering that countries with problematic
banking systems, little room for fiscal manoeuvre and low growth
(Belgium, Ireland, Austria, Greece and the United Kingdom) will face
increasing difficulty to manage their financial weakness and become
destabilising for the whole EU. First-best solutions – fiscal cooperation or
common financing instruments (Eurobonds) – remain unheeded as they
typically require strong political commitment. This is inducing defensive
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8 | CARLO BASTASIN
attitudes by the banks themselves, resulting in less credit to the economy
and less growth.
Exiting the crisis might prove a bigger challenge for the EU than the
crisis itself. The area is divided between fast countries and slow countries.
There is a risk that the growth divergence will reinforce these trends.
Countries that grow faster can reduce public debt more easily, benefiting
from less crowding-out and lower risk premia. Their banking systems can
finance innovation instead of simply struggling to reduce losses.
If the implementation of short-term policies is disappointing, the
long-term consequences of a lack of coordination are outright worrying.
Countries without fiscal room of manoeuvre and with critical banking
situations will need to be supported by countries with larger room of fiscal
manoeuvre. Countries risking public-debt failure will also need support.
Without macroeconomic coordination, current account imbalances, in an
environment of low growth, will jeopardise public debt sustainability. All
of this might trigger a chain effect from the weakest to the strongest links of
the European Union.
Why is Europe drifting towards self-defeating non-cooperation?
The answer lies in the objectives of national governments. The system
of national partisan politics in Europe defines itself in terms of its
protective or, alternatively, protectionist stance with respect to
globalisation. National consensus builds both on closure and openness.
More precisely, it works on the basis of a principle one might call ‘partisan
protectionism’: the protection of the constituency – labour for the left wing
and capital for the right wing, identified with partisan ideologies of the
past two centuries – while vigorously exposing the other constituency to
the full duress and dynamics of global competition.
This duplicity – far from weakening it – is strengthening the grip of
national ideologies on the imagination of the citizens of each European
country. Traditional – national – politics become a structural hurdle with
respect to coordination. The euro, for its many merits, has been the catalyst
of the contradiction between an open economy and closed politics. Now,
lacking an open European politics, the siren song of national protectionism,
carrying us away from European cooperation, sounds irresistible.
1.
A crisis in consensus
During the early decades, the European integration process elicited broad
consensus as reflected in public opinion of the various member states.
PARTISAN PROTECTIONISM | 9
Historical, political and cultural reasons had fed into a generally positive
attitude towards the early integration initiatives and their rhetoric.
Somewhat simplistically, this has been referred to as a ‘permissive
consensus’, i.e. a consensus not preconditioned by the concrete political
goals set forth in the European project, but rather by benign and not
necessarily informed support for the long-term ideals evoked.
Prior to 1973, no statistical data were available on public opinion
attitudes – a gap since filled by the Eurobarometer surveys, which have
made it possible to demonstrate statistically that a significant change in
public attitudes vis-à-vis the European Union has indeed occurred. The
1990s are the traumatic epicentre of this change. More specifically, up until
1991, explicit consensus among European citizens continued to rise, with
the Single Market project marking the highest point in terms of positive
answers to two standard questions: Are you for or against the efforts currently
being made to unify Europe? and Do you feel that in general terms your country’s
membership in the European Union is a good or a bad thing? In 1991, 82% of all
Europeans replied in the positive to the first question, and 72% to the
second as well. A few years later, around 1997, positive answers to both
these questions had dropped by 15 to 17 percentage points.
Public opposition to the European project emerged for the first time
in a number of different countries during the critical years between 1991
and 1997: the Maastricht referendum failed in Denmark and Ireland and
quite surprisingly, only passed with the slimmest of margins in France.
Opposition to monetary union mounted in Germany, eroding the
customary pro-integration majority (so much so that until 1998, two-thirds
of all German respondents stated that they opposed the euro) with the
support of the Karlsruhe Constitutional Court, and anti-Europe
parliamentary votes in the UK garnered much attention and broad public
opinion support, expressed via idiosyncratic anti-European media
coverage. New localist political groupings in Italy, Austria, the Netherlands
and Scandinavia began to gain ground through anti-European and at times
outright xenophobic programmes, with some obtaining government
positions by the year 2000. As of the 1990s, dwindling support for Europe
had become an unavoidable issue.
But what exactly do we mean by ‘consensus’? Strictly speaking,
consensus is a positive response to a question, a second-tier request
following that which led to the emergence of whatever is the object of the
consensus. This is why British observers in particular have so often stressed
10 | CARLO BASTASIN
the European Union’s ability to deliver rather than to deliberate. There are
many cases where joint achievements elicit consensus only after they have
materialised: there are thus far fewer Germans opposed to the euro today
than in 1998, as in this case European policy implementation has elicited
consensus through its output. And the scope of this extra-democratic
process subsequently extended even further, leading observers to speak of
output-based ‘legitimisation’.
But for various reasons, the process does not always work. In a
number of cases, the ability of the European Union to deliver has not been
appreciated by its citizens. Costs have remained more visible than benefits,
and an inter-temporal balance between costs and benefits has not slotted
into the rhetoric of politics. More specifically, according to some observers,
the shift from negative to positive integration (ranging from the removal of
obstacles to integration, a symbolic high point of which was the
establishment of the Single Market, to projects establishing as European
prerogatives that had hitherto been domestic, through institution-building
and handouts of sovereignty) has made ‘preventive consensus’ harder to
obtain. Telling Europeans “just wait and see, you’ll love the outcome” is
simply not enough when the process implies highly complex cost and
benefit offsets within countries, among countries and, indeed, over time.
This is particularly true when the stakes involve decision-making
processes, the outer limits of which cannot be foreseen – no more than their
end-points and thereby the full extent of their consequences: such decisionmaking processes, insofar as they are not devised for a single and specific
project, tend to involve delegations of political sovereignty that are both
broad and vague.
And thus the issue of consensus has become overlaid with that of
Europe’s democratic deficit, i.e. the lack of popular involvement and
control that is notoriously the mark of decision-making processes within
European institutions. Public opinion detachment has been linked to the
issue of remove between citizens and European decisions. According to this
interpretation, a dwindling consensus on things European corresponds to a
demand for more democracy on the part of public opinion – handling this
demand properly, through the appropriate institutions, would be the only
way to grant legitimacy to European decisions.
Sounds convincing. But it isn’t. Had this really been the case, had the
low level of citizen support stemmed from citizens’ frustration with their
modest involvement in democratic decision-making processes, with the
PARTISAN PROTECTIONISM | 11
limited openings granted them to exercise control and demand
accountability, why did the ratification process of the Constitutional Treaty
fail when submitted to a popular vote in both France and the Netherlands
and that of the Treaty of Lisbon more recently in Ireland? Both documents
provided for more democratic decision-making, and one would have
expected that European citizens would have been very approving of a
fairly ambitious attempt at containing Europe’s democratic deficit.
In other words, either the constitutional draft was actually not
ambitious enough, or clearly the overlay of consensus and democratic
deficit-based explanations doesn’t do the trick. As shown – in the negative
– by the drop in voter turnout in elections to the European Parliament, for
an institutional and political organisation to elicit broader popular
consensus, institutional forms or structures are just not enough. Channels
through which consensus can mature – typically within a domestic context
– must find an effective way of entering into dialogue with channels used
for European deliberations. And for this to happen domestic policies must
absolutely be consistent with European policies. Therefore the channels
linking domestic public opinion to government-level policy decisions and
European policy need to be watched closely, and no sweeping conclusions
drawn.
A number of generic explanations have been put forth that aim to
describe the consensus hiatus, which appeared between 1991 and 1997. A
non-comprehensive list would include, indicatively, the following standard
motivations: the relinquishing of too much sovereignty, Brussels’ low
legitimacy, less advantageous trade-offs between political autonomy, social
identity and economic benefits, the rise of localist movements in the face of
globalisation and the crisis experienced by ideological families in the wake
of the collapse of communism. All of these are plausible explanations. But
taken separately, or in the absence of a broader model that would lend
them consistency, they do not shed much light on the dilemma. In
practically all cases, they even appear to contradict one another: the
relinquishing of sovereignty was perhaps somewhat excessive, and yet
surveys show that citizens would be willing to accept even more in specific
fields such as foreign or security policy; Brussels does not appear to have
much legitimacy, but the citizens of some countries refuse to accept deeper
or more democratic political institutions; localist movements are now
waning in most countries; the ideological crisis has not benefited the
European Commission, a model non-partisan institution. All these
12 | CARLO BASTASIN
explanations of the 1992-97 crisis, therefore, appear to be impressionistic in
nature, and therefore are unsuitable for further analysis.
The point I wish to make here is that the crisis in consensus primarily
concerns domestic politics. And that in particular it has to do with the
quality of public discourse, which to this day is still dominated by 20th
century ideological categories in its upholding of the left/right divide as a
leading, polarising criterion. Crossing this left/right opposition with
another highly significant polarisation – that between closure to the outside
world and openness – allows for descriptions of national politics in a
context that highlights the global opening of European economies.
To the opening of societies and economies, domestic politics both left
and right have responded according to a criterion that I call ‘partisan
protectionism’, which in other words protects nothing but their basic
constituencies in accordance with the ideological habits of the 20th century
(with the right wing endorsing capital, and the left, labour) and opens up
(i.e. exposes to global competition or to European integration) the rest of
society, i.e. the political opposition’s constituency. Against this backdrop –
and it is no accident that the crisis in consensus should have occurred
precisely between 1991 and 1998 – the euro proved to be the factor that
revealed the inconsistencies of politics inspired by partisan protectionism.
Because the euro did render inconsistent domestic policies anchored in the
ideological rhetoric of the 20th century and, absent a response, a political
vision consistent with openness, it eroded citizens’ general trust in politics.
Partisan protectionism, in its defensive side, has been evident even in
the public responses to the crisis. French right-wing government has
supported businesses twice as much as jobs. British left-wing government
has supported households three times more than firms. Germany’s Grand
Coalition has distributed public monies almost evenly between households
(55%) and firms (45%). Once taken account of fiscal effects, the Italian rightwing government has supported firms more than jobs, and the Spanish leftwing government has protected jobs more than firms (excluding the hardhit real estate and banking sectors).1
As long as partisan constituency protectionism continues to inspire
national policies in their day-to-day grammar, European principles of
openness and shared government will not find favour at the domestic level.
1
See European Commission (2009).
PARTISAN PROTECTIONISM | 13
On the contrary, their hostility to citizens’ interests will be underscored.
Demands for constituency-based political innovation will rise, in particular
with the challenge of aging and managing healthcare systems, and this will
call into question the universal rights that are at the very root of European
feelings of equality and social identity that generated forms of ‘social
patriotism’ in Europe after the war, when any other national feelings
seemed unacceptable. In the absence of a political vision that can tackle not
so much the opposition between state and market, but rather their
cooperation, there will be no developing of either ‘open’ policies (unlinked
to national borders) or efficient public responses. To sum up: protectionist
and populist behaviour on the part of national political establishments –
driven by the cultural legacies that have precluded coming to terms with
the openness of global society – has eroded the pro-European consensus
and may jeopardise the ultimate survival of the very project.
2.
A crisis in politics
Even when European public opinion was at its most detached vis-à-vis the
European Union and its plans for the future, Eurobarometer surveys
continued to indicate that the crisis in consensus concerned domestic
politics and institutions just as much as it did their European equivalents.
The surveys showed that European citizens ascribed to their national
governments and parliaments both more reliability, in terms of defending
their interests (protection function) and more unreliability with
discrimination being a risk: quite what one would expect when
constituency protectionism prevails, as it posits that national governments
do represent protection, but only for part of the country’s voters.
Regarding national institutions, governments and parliaments,
citizens expressing distrust have always outnumbered those expressing
trust, whereas the opposite prevails when the same questions are asked
with respect to the European Commission and Parliament. The greater
degree of distrust shown for national institutions as compared to their
European equivalents is self-evident and well known among various
observers of all things European. Vivien Schmidt (2006) thus observes:
“The institutional reforms envisioned in the Treaty could indeed have gone
some way toward reducing the perceived problems of EU democracy. But
they would not in any case have solved the real problem of democracy in
the EU: the democratic deficit at national level.” She considers that
‘Europeanisation’ has taken meaning away from domestic politics and
14 | CARLO BASTASIN
further points out, incisively, that a “policy without politics” system has
emerged at the European level while a “politics without policies” system
prevails nationally. This, she feels, has led to disaffected voters and
political extremism in member states. As the Constitutional Treaty aimed
precisely to reconnect at least in part politics and policies, the ratification
process failure may show that resistance to the idea of reconciling public
opinion with European politics lies precisely at the political level and
therefore at the level at which, domestically, public opinion is formed.
It is very often posited that in societies as complex as ours, citizens’
political choices no longer correspond to simple left-right divides. In actual
fact, ever since the 1950s, these categories have been viewed as
decreasingly relevant. Nevertheless these two flexible and dialectic poles
continue to inform the traditional choices that determine incentives and
punishment for national governments. Citizens quite deliberately use
constituency politics categories when bestowing or removing their consent
where it matters most, i.e. in domestic political competitions.
And in actual fact, focusing on leading European Union democracies
in the 1990s and the early years of the current decade, the passé concepts of
right and left do provide us with a powerful key to understand
constituency-protectionist politics and its consequences. In France,
Germany, Italy and other countries as well, economic policies have
highlighted the differences in stances taken by right- and left-wing
governments. To simplify matters to a fault, the former have privileged
labour market liberalisation while protecting the ownership of capital, and
the latter have privileged financial market liberalisation while protecting
labour markets. In simple terms, this is partisan protectionism.
In the years just after the fall of the Berlin Wall, the right- and leftwing continued to identify with capital and labour, i.e. the conventional
socio-economic categories of ideological face-off politics. French
privatisations were thus launched by Balladur’s conservative government,
which upheld golden share control by entrepreneurs with the right
personal and political connections, while Jospin’s socialist government
went on to privatise capital through a stock exchange reform that impacted
corporate governance and stressed the need for transparency in asset
ownership. Similarly, in Germany, Helmut Kohl’s conservative
government launched a financial market reform, but protective networks,
the real hallmark of German relational capitalism, were dismantled by
Gerhard Schroeder’s socialist government. The same occurred in Italy, with
PARTISAN PROTECTIONISM | 15
a left-wing government privatising and overhauling the tenets of corporate
governance while the right-wing government that took over from it put an
end to privatisations and market liberalisation, increasing the protective
opaqueness of proprietary asset markets by passing legislation that
favoured false accounting. The converse occurred regarding labour market
reform: left-wing governments strengthened, in relative terms, labour
protection and trade unions’ protective role while right-wing governments,
on the whole, attempted labour market liberalisation. In France, for
instance, the 35-hour work week legislation adopted by left-wing
governments has been eroded by right-wing governments introducing
flexibility in starter job contracts and more recently still, in tax regimes
applicable to overtime, not to mention limitations on trade union rights to
strike in public services (also known as the ‘service minimum’); in Italy,
following the Treu reforms adopted by a left-wing government, the socalled ‘Biagi legislation’ proved to be a battle-horse for the centre-right
government and its amendment or repeal is the focus of conflict, within the
left-wing, between reformists and radicals. In Germany, labour market
reform was initially planned, albeit somewhat reluctantly, by the Kohl
government, but it had to wait six years and a 60% increase in the
unemployment rate to actually wend its way onto the political agenda of
the centre-left. Currently France’s President Nicolas Sarkozy implemented
explicitly right-wing protectionist policies: liberalising labour markets
while protecting capital and national champions, and going so far as to depenalise corporate crime. Consistently, Sarkozy is opposed to granting
European antitrust policies constitutional status, wishes to limit ECB
autonomy and temper common trade policy. Looking into individual
economic policy measures clearly yields a more subtle picture, but partisan
protectionism remains fairly prevalent in the rhetoric of both right- and
left-wing European politics: the left tends to protect labour and open up
corporate equity and capital markets, while the right tends to do the
opposite.
With the opening of national borders to the global economy, national
governments soon realised that opting for isolation vis-à-vis the rest of the
world, and closing up borders, was impossible or in any event,
counterproductive. The sophisticated response has been to protect on a
priority basis only those segments of the economy in which vested
constituency-based interests lie, while opening up the rest of the economy
to the pressures of globalisation and making them bear the brunt of the
adjustment. In so doing, both the right and the left have ended up referring
16 | CARLO BASTASIN
back to traditional 20th century categories: capital for the right, labour for
the left.
Partisan protectionism is at the root of a whole set of political
paradoxes that have generated distrust of politics. By engaging in
constituency protectionism, left-wing politics thus obtains right-wing
results (insofar as exposing capital to competition increases its relative
productivity as compared to that of labour) and vice versa; strengthens
ideological confrontation (to the extent that only one voting constituency is
made to bear the brunt of adjustment, political confrontation is
exacerbated); challenges the credibility of politics (with one production
factor flexible and the other rigid, the economy is bound to operate suboptimally); strengthens the rhetoric of isolation (as adjustment to the outer
world is entirely made to weigh on one part of society); favours nonpolitical solutions (with the politically disfavoured production factor going
for either the ‘black’ economy or tax evasion) or solutions that are not
constituency-based (centrist or broad coalition governments that aim for
protection rather than for openness); all of which encourages the rhetoric of
isolation or of ‘domestic’ (in actual fact, constituency-based) interest
protection, whereas policies could be embraced that aim to open up the
economy.
Clearly, constituency-based protectionism stands opposed to the
policies of openness that mark European integration and can therefore only
make further inroads as support for Europe flags.
3.
The euro as trigger – two examples: Germany and Italy
It is no accident that constituency protectionism emerged in the 1990s and
more specifically between 1991 and 1998, as ideological confrontation
rhetoric and trust in politics were then made inconsistent by the advent of
the euro.
Prior to the liberalisation of capital flows, political comparisons in
terms of income distribution were not really telling. Up until the early
1980s, small to medium economies with their own currencies, operating
under limited capital flow regimes (‘closed economies’ for the sake of
keeping things simple) could singly determine economic policies favouring
either capital (in line with preferences voiced by right-wing voters) or
labour (in the case of left-wing governments), knowing that the benefits
directly deriving from such political decisions would be redistributed
within national borders. Under a very simplistic closed economy model,
PARTISAN PROTECTIONISM | 17
right-wing policies would probably primarily benefit capitalists’ profits,
inter alia through lower capital taxation. But favouring return on
investment also implies increasing the supply of investment, which in a
closed economy in turn generates an increase in labour demand and,
assuming production factor immobility, a subsequent increase in wage
levels and increased income including for those who are not capitalists.
Left-wing governments would probably adopt a different tack, supporting
employment or wage levels, stimulating demand for consumer goods
through increased household incentives, thereby laying the ground for
increased yields on corporate productive investment. Setting aside for the
moment business cycle issues, and thus remaining in a static medium-term
world – a radical assumption that is nevertheless realistic in politicians’
timelines – as well as the vigorous rhetoric of ideological confrontation, in
terms of both income redistribution effects and the boost to growth, left- or
right-wing policies would thus most likely be quite similar (ruling out
radically anti-capitalist or anti-democratic policies). And should we assume
– more realistically – a dynamic equilibrium in a quasi-closed economy, i.e.
the typical position of European countries in the 1970s, conclusions would
hardly differ. Poor resource allocation among domestic production factors
would lead to balance of payments imbalances, which could in turn be
remedied through monetary or exchange rate policies.
The economy’s quasi-indifference to constituency-based policies has
been acknowledged by analysts focusing on country performance as
viewed via ‘domestic models’ centred on labour market institutions, rather
than via policies specifically determined by the requirements of given
political constituencies. This quasi-indifference assumption is a radical
critique of conventional political analysis, which considers the rhetoric of
right- and left-wing dialectics as an a priori significant interpretative key,
because of values-related differences. In the real world, however, a quasiindifference context presents parties with prime ‘moral hazard’ conditions,
through which they can exercise radical dialectics as well as indulge in
ideological proselytism, without in the end having to fear the consequences
of their own economic policies, the potential inefficiencies of which can, if
necessary, be offset through exchange rate-mediated balance of payments
adjustments.
In this framework, monetary policy instruments clearly play a central
role. Nearly all payments imbalances generated by poor, politically-biased,
capital-to-labour resource allocation can be offset through exchange rate
18 | CARLO BASTASIN
changes. And in some countries, exchange rate policies did indeed become
the cornerstones of public policy.
Two countries – Italy and Germany – are emblematic of this centrality
of exchange rate policies in the 1970s and 1980s, despite radical differences
in their respective monetary philosophies.
Italy’s recurrent devaluations helped the country rebuild a
competitive edge eroded by constituency-based agreements – whether
capital subsidisation or labour protection – entered into by governments
and social partners primarily to defuse domestic social conflict and
manufacture artificial political consent.
Germany, conversely, acknowledged that its central bank – the
Bundesbank – was a fully independent monetary authority. While formally
keeping a distance from the political fray, the Bundesbank in actual fact did
interfere directly in capital-labour relationships. The German central bank
was indeed ready to pre-empt all trade union wage hike claims that might
have proved excessive in the light of its very restrictive inflation targeting
through interest rate increases feeding into exchange rate appreciation,
money supply decline and thereby a drop – in relative terms – in the
demand for labour. The central bank played a crucial political role – rightly
so from the point of view of Ordnungspolitik, to use the Freiburg definition –
each and every time the balance of income distribution between wages and
profits tended to generate inflation, or a balance of payments deficit. The
very attractiveness of the D-mark as an investment currency helped keep
investment flows within Germany’s borders (in a financially effective form
of ‘competitive revaluation’, as opposed to trade-effective ‘competitive
devaluations’).
Both Italy and Germany’s institutional set-ups, with central banks
operating under different mandates, provided political groupings with the
opportunity to engage in hard-edged rhetorical confrontation, without ever
really going for conflict: whenever conflicts between capital and labour
would generate inefficient economic policy ‘fits’, and therefore current
account imbalances, the exchange rate would appreciate or depreciate,
resetting the system to the same initial conditions for political confrontation
on income distribution. The vibrant rhetoric of political and social conflict
was therefore to a large extent all talk. In the years that preceded capital
flow liberalisation, ideological confrontation may have appeared to raise
life and death issues – in practice it was largely neutralised by foreign
exchange policy.
PARTISAN PROTECTIONISM | 19
With the adoption of the euro, exchange rate policies ceased to be an
option. Biased decisions in terms of income allocation to capital or labour,
generating payments imbalances, are no longer inevitably offset through
currency management in the framework of a closed economy. On the
contrary, in open economies with no control over exchange rates, worse
case scenarios – where a given government adopts the wrong economic
policies – lead to forms of factor mobility that penalise the least mobile
factor, generally labour; best case scenarios – where political decisions are
cogent with the development of an open economy – lead to situations
where the relative advantage enjoyed by one production factor does not
necessarily generate medium-term adjustment in favour also of the other.
In an open economy, political decisions that favour one factor have more
durable and imbalanced an impact than would be the case in a closed
economy.
We tend to assume that we live in a post-ideological world, and that
we are therefore sheltered from political conflict, whereas the conflicts
implicit in right and left-wing policy decisions (both on the supply and the
demand side) are far more loaded in terms of sustained consequences on
equity today than was the case in the age of ideological confrontation.
Protecting the interests of voter constituencies has taken on a much more
concrete meaning, and has become more effective from the point of view of
both distribution and advocacy for constituency-based policies. In other
words, the adoption of the euro did mark the blossoming of partisan
protectionism into an attractive electoral strategy for national politics,
while it proved negative in terms of consent and support for Europe,
insofar as it opposed the protective effectiveness of domestic policies to the
claims to openness voiced by Europe.
4.
Protection versus protectionism
We have just described the process by which the link between the euro and
national political strategies gave rise both to constituency protectionism
and a drop in support for the European Union (obviously, not only did
those countries that joined the eurozone renounce autonomous monetary
policy, but all of them did). Synchronicity with the crisis in support
revealed by surveys is self-evident.
But can’t constituency-based policies ever have protective features?
This is a legitimate question that nevertheless requires moving away from
the ‘closed society’ paradigm. In an open world where economic structures
20 | CARLO BASTASIN
are highly dynamic and changing, upholding the interests of a given
constituency does not necessarily correspond to specific allocative or
distributive policies regarding production factors. Political splits are more
often reflected in differing formulas and weights regarding equal
opportunities, workers’ participation in management, human capital
investment, etc., or whether state or markets should be favoured in order to
achieve goals of equity.
During the initial phases of globalisation, major episodes of domestic
economy overhaul tended to coincide with forms of economic structural
modernisation that concerned both capital and labour markets. Margaret
Thatcher has gone down in history for having done away with the control
previously exercised by trade unions over British industry, but an equally
important achievement was the renewed dynamism in capital markets,
which opened up corporate ownership and shareholding. More recently
the overhaul of the German economy has gone through two phases: first
the reform of capitalism, which occurred partly spontaneously, partly
through corporate governance reforms, and secondly, with the Agenda
2010 reforms, which removed a number of rigidities in labour market
regulation as well. Some economists have claimed that in order to be
effective, product market liberalisation requires labour market
liberalisation. Although the rule is not very well defined, non-constituencybased economic reform (at least in the 20th century acceptance of these
terms) does appear to be effective.
As societies evolve towards knowledge economies, with service
sector development and increasing dismantlement of borders in terms both
of corporate ownership and production processes – with recent business
theories talking of globally distributed tasks with no regard for the local
production processes that used to ground specificity, as well as regional
and community politics – we increasingly need a societal description that
will not fragment around age-old splits between labour and capital: a
society we could deem, for simplicity’s sake, an open society. In open
societies within a globalised economy, constituency protectionism has even
less of a functional rationale than it did before.
Overcoming the reservations of the electoral interests/protection
structures connection therefore requires one to spell out the true benefits to
be derived from an open economy. If the European Union manages to
convince voters in its member states of the political advantages and
economic benefits to be derived from an open society, it will also manage in
PARTISAN PROTECTIONISM | 21
the process to repair the damage that has proved so detrimental to its
future – but this will however not happen without the input of national
policies. Domestic constituency-based political strategies need to focus on
investing in human capital – according to different modalities, with
different roles bestowed on public and private sectors depending on
individual ideological preferences – and on making the most of global
opportunities to date unconfined by domestic borders, so as to trigger a
race towards controlled openness. Economic benefits, openness, joint
government could thus become the terms of a new virtuous circle.
The whole issue of protecting citizens against economic and social
risk cannot be swept under the carpet simply by passing negative judgment
on protectionism, which uses it to manipulate matters politically. We
would rather view support for the European Union as the outcome of a
linear process: as economies become ever more open, innovation and
productivity increase, and in turn generate jobs and prosperity which in
turn elicit support in citizens both for national governments and for
European institutions. This approach is reflected in the very history of
European integration and the specific technical and economic ‘vehicles’
that have guaranteed its progress. In recent years, however, it has become
ever clearer that the logical sequencing mentioned above – openness,
reform, economic success, political support – does not correspond to the
way most Europeans think. To quote Liddle & Lerais (2007), “the citizens of
our countries think that globalisation, market liberalisation and the
constant quest for competitive advantages are at least as much a threat as a
cure”. Citizens want some sort of risk insurance and failing this, the
demand for protectionism will continue to rise. Globalisation is the
reference framework within which the new finalities of the European
Union must be defined. In the face of emerging new economic powers, of
open borders, of major global phenomena – from climate change to
terrorism – the European Union is positing itself as an institutional
framework where demands for openness must adequately be met,
alongside demands for security. Should this not happen, constituency
protectionism shall prevail domestically, and support for the EU will
decline. We may pretend that the need for security isn’t there, but
whenever European voters have their say we shall see that this ‘perverted’,
obsessive search for protection does indeed exist.
Guaranteeing openness, while providing some form of security,
assumes the ability to govern: the ability responsibly to reach decisions on
the implicit choices underpinning trade-offs between growth and security
22 | CARLO BASTASIN
or, for those who doubt that there are such trade-offs, between short-term
insecurity and long-term growth. This inter-temporal bridging function
also assumes the ability to govern, be it only because there is no systematic
synchronicity between power and responsibility. It is no wonder that a
significant number of European citizens feel that in the face of economic
globalisation, their request for security has remained unanswered by the
European Union. The Union, insofar as it has only integrated markets, is in
fact perceived on a par with globalisation: that is, first and foremost, as an
unaccountable player in the openness policy. Leaving aside a number of
dubious initiatives such as the European Globalisation Adjustment Fund
(EGF), to date its political response to the request for security has been to
state that the issue was not its concern, and that all it could do was wait for
the restructuring of European economies to yield economic dividends to
the public at large.
Feelings of insecurity have further grown as other significant events
have highlighted that the European Union is very often at loggerheads with
member states when it comes to economic coordination. The need to
engage in the structural reform of domestic economic systems has in fact
coincided with fiscal consolidation in almost all member states, giving rise
to financial re-balancing processes that have often proved painful and with
no end in sight, and that have thus increased citizens’ feelings of utter
isolation in the face of the costs of globalisation. Rationales for fiscal
consolidation include aspects of relevance to citizen support: the need for
long-term sustainability as populations age (which is tantamount to
securing welfare systems); a clearly defined efficiency requirement applied
to the use of public monies; and a preference for lower tax burdens in view
of the increased heterogeneity of our societies. But insofar as this process
has coincided with the single (global) market’s initial economic pressures, it
has amplified contradictions between resource redistribution required
locally for fiscal consolidation, and resource redistribution required by the
opening up of our economies – which is now eliciting much (politically
expressed) vexation.
Faced with the social costs of economic change and financial
consolidation, individual member states and the European Union have
often adopted opposing attitudes vis-à-vis citizens. Domestically, citizens
have two basic references – their welfare systems and their protection (or
closed economy) requirements, which they put to political parties as
markets open up, and liberalisation proceeds apace. At the European level,
fiscal consolidation and market openness requirements – in other words
PARTISAN PROTECTIONISM | 23
requirements that are the very opposite of citizens’ protection requirements
– are written into the very history of the Union. The EU has accrued long
experience in coming to terms with issues of openness and challenges
posed by structural reform. From the common to the single market, and
then on to monetary union and the Lisbon agenda, the European Union has
strengthened the dynamic vectors of border dismantlement and economic
restructuring. And the same has obtained for fiscal consolidation: stability
and fiscal discipline, convergence criteria, the Growth and Stability Pact all
go to show European citizens that the political language of globalisation
resides in Brussels, and not in their own national capitals and that
moreover, this language is far removed from their possible control.
However legitimate may be the criticism levelled against some national
governments who indulge in ‘Europe-bashing’, one must acknowledge that
a number of structural reasons do explain the fact that in the absence of a
genuine ability to govern on the part of Brussels and therefore of an ability
to promote both openness and security – citizens’ dissatisfaction vis-à-vis
uncontrollable social phenomena will quite naturally target the European
Union.
It is therefore clear that in order not to fuel demand for protectionism,
attention must be paid to this demand for protection: and thus forms of risk
insurance must be provided that cover, first of all, the future of the welfare
state. Because in the end, uncertainties in this respect may well explain the
failure of so many polls on European issues.
5.
Welfare
Thinking about the future of the welfare state in Europe requires a dynamic
approach. It so happens that the factor that defines the priority ranking of
the European social state is dynamic, including its productive structure,
savings parameters and aggregate demand features. Clearly my reference
here is to population aging, with its weighty consequences in terms of
pensions and healthcare spending. According to UN data, people aged 65
and over will account for more than a quarter of the total population in
2030, as against 8% in 1950 and 14% in 2000. Population aging has a
dramatic impact on financing schemes based on workers’ contributions. In
some European countries, such as Italy and Spain, the dependency rate of
retirees vis-à-vis workers is going to double in less than 50 years, growing
in Italy from 27.9% in 2000 (26% in Spain) to 64.5% in 2050 (63.5% in Spain).
In most countries welfare reforms undertaken in the 1990s focused on the
24 | CARLO BASTASIN
issue of pension scheme funding. Starting off with incremental corrections
that slightly altered or somewhat tightened pension scheme parameters,
reforms then focused on structural features including entitlements,
indexation rules and retirement age. Currently, official EU forecasts for
some countries point to dramatic growth in the impact of pension-related
payments on public spending. In Spain, estimates point to a quasidoubling, from 9.4% of GDP to 17.7%. Budgets will also have to contend
with other increases in spending stemming from aging-related social
programmes. According to estimates, the comprehensive increase is likely
to total 3% to 10% of GDP, depending on welfare provisions and
demographics. These fiscal consequences clearly show that unless
measures are taken in time, the situation may well become politically
untenable. As we know, within aging societies, voters’ interests tend to
increase the political cost of reform. Under the circumstances the issue of
political compatibility between European economic, monetary and fiscal
integration on the one hand, and the political and social sensitivities
expressed at the domestic level on the other, must thus once again be
addressed. One can easily envision domestic political costs being shifted to
Europe. A risk that may however conceal an opportunity: couldn’t
European integration help member states safeguard welfare state equilibria,
while strengthening citizens’ trust in Europe?
Regarding the future of welfare systems there are at least three
different possible outcomes, depending on the scope and quality of
political initiative assigned to supranational bodies. The first is a European
welfare system, modelled on national systems, administered by a
continent-wide bureaucracy. The second is a system where national welfare
schemes are not connected to European institutions, as these are not
deemed to have any right to interfere in the social risk insurance models
chosen by individual member states. The third is a regulated market for
welfare schemes, where individual countries guarantee the universal
coverage of their citizens at levels determined through regulation and
redistribution, but where service provision by entities of all countries, both
public and private, is allowed.
The first of these possible outcomes is not popular and governments
advocating such a way forward would be headed towards political suicide.
Delegating part of the responsibility for pension scheme management to a
supranational institution such as the European Commission might help
individual states reduce the political cost of reform, but would increase
public distrust of Brussels and in the end might even risk weakening
PARTISAN PROTECTIONISM | 25
support for further European-level reform. The second outcome
corresponds to the ‘separate track’ approach adopted so far. When the
integration project was first launched in the 1950s, federalist discourse
highlighting an ‘ever closer to citizens’ stance and various functional spillovers was underpinned by the idea that the European Community should
focus on opening markets in economic terms, while individual states
retained control over welfare and social solidarity schemes. Starting in the
1980s this division of labour became somewhat unrealistic and with
monetary union it has become downright counterproductive. To echo
Ferrera (2006), insulating national welfare schemes from the dynamics of
economic integration and supranational interference has long since ceased
to be possible. This means that one should look into the third possible
outcome, the only one that is both “realistic and European” (a point
comprehensively addressed by Gareth Davies (2006): a European-wide
regulated market for welfare services that would recognisably propose the
European Union’s social model, leaving the first pillar – which remains
symbolically so important to national identity – under national jurisdiction,
albeit within a European coordination and control framework, while
developing a second pillar through a truly integrated market for voluntary
pension schemes and supplemental health care coverage, eliciting public
and private supply of increasingly efficient services, disconnected from
territorial origin.
There are many forces driving market-based harmonisation of
European welfare systems and in particular focusing on provision of
services by both public and private players. The first has to do with the
quest for more efficiency in public spending and is linked to citizens’ tax
preferences as well as to the need for effective public support at a time
when private sectors are undergoing intense restructuring. Further impetus
stems from economic coordination at the European level with a view to
achieving greater convergence in public spending at least in terms of public
policy stability and, to a lesser extent, quality. Another force has to do with
‘negative’ integration (i.e. the elimination of national protection) spurred by
European jurisdictions wherever public services, because of their economic
nature, come under European freedom of movement legislation, despite the
well-known distinctions set forth in the Bolkestein Directive regarding
welfare service liberalisation, in particular with respect to healthcare, but
also more broadly to services targeting social objectives or presenting
general economic interest.
26 | CARLO BASTASIN
The trend towards privatisation of a significant part of national
welfare schemes can contribute to the harmonisation of European social
assistance services insofar as private providers of welfare services, such as
a German hospital, a British university or a Dutch pension fund, can
provide similar services in a variety of different countries. These trends
further reflect a number of other developments linked to the
dismantlement of state economic monopolies, which has led both to an
increase in the numbers of providers of public services and to a
diversification in terms of quality. Thus, while continuing to uphold the
right of all citizens to welfare coverage, an increasing number of countries
handle health insurance and pension schemes through private providers;
the privatisation process stems from the need for more rigor, and therefore
more cost control in public spending. With public and private providers
working in parallel, the former are encouraged to be more efficient, which
corresponds to a general request on the part of public opinion. Finally,
private providers, which are often able to break down the actual cost of
services, allow for greater user choice.
The European Court of Justice has considered healthcare systems to
be an ‘economic activity’, while it has refused similarly to define higher
education as such. But if welfare services are considered to be an economic
activity, one can hardly shield them from the freedom of circulation of
services rule that in practice voids the nationality requirement for both
providers and users of such services. The real obstacle to European action
favouring welfare system integration lies therefore not in the European
Union’s history nor in its current legislation, but in an absolute lack of
political will.
In discussions on the Bolkestein Directive, which liberalises markets
for services, the idea of including healthcare services met with quite
considerable resistance, despite the fact that the Court had deemed them to
be an economic activity. There appears to be considerable resolve on the
part of both governments and citizens to retain control over individual
welfare systems, regardless of the clear efficiency gains that might derive
from a broader market, more specialised providers and quality controls
that would prove efficient even vis-à-vis state monopolies.
That said, welfare systems are one of the few fields addressed by
politics in which each and every citizen has a concrete, direct and personal
interest. It is quite understandable that citizens should wish to retain
control over such interests, especially vis-à-vis European institutions the
PARTISAN PROTECTIONISM | 27
nature, efficiency and accountability of which they only dimly see.
Resistance on the part of national political establishments, fearful of losing
the power and influence they currently wield, is even stronger. This means
that politically, no proposal to engage in positive welfare system
harmonisation is likely to come forward, which paradoxically has the effect
that markets will be left free to circumvent the regulatory obstacles defined
by individual member states. Lack of governance or direction thus often
leads to situations where citizens increasingly distrust politics and
globalisation. Unregulated welfare service provision does not however
guarantee that the solidarity dimension of current systems will be carried
over, regardless of the significance of this dimension within citizens’ more
general request for security. The provision of private services of differing
qualities actually tends to drive a wedge into the quality of social services
on offer, but because of correlations between homogeneity and public
solidarity, increased heterogeneity may transform the reasons for which
citizens typically support European forms of solidarity. For changes to
welfare systems – required to make them sustainable, efficient and ‘open’ –
to be politically neutral, these changes must be governed and steered, and
part of the political responsibility for this – even if only regulating private,
non-national welfare service providers – shall inevitably behove European
institutions.
In order to be credible in taking this responsibility over from
individual member states, European institutions cannot avoid engaging in
some serious thinking on how they themselves view individuals and
societies. This is a difficult and demanding task, and it is no accident that to
date it has failed to achieve one of its primary goals: laying constitutional
ground for the whole structure. Positing a European welfare model based
on regulated market services, rather than proposing a simple state model
with monopoly over user choice, implies that European institutions have to
become providers not only of rules and controls, but also of safeguards
regarding citizens’ freedom to choose.
According to Ferrera (2006), realistic approaches to the reconciliation
of economic reform and social stability require political innovation to be
even more structured at the common level, and demand that domestic
welfare systems be slotted into a framework that currently lacks a multilevel European area of citizenship, on the basis of a joint catalogue of basic
civil, political and social rights, including a European safeguard in terms of
minimum (or sufficient) resources that could possibly be financed directly
out of the European budget. This more ambitious qualification of the social
28 | CARLO BASTASIN
dimension of European citizenship could open avenues to pilot initiatives
aiming to address specific societal problems in Europe: combating youth
poverty, setting up loan systems for higher education funding, supporting
single mothers, easing cross-border mobility.
6.
Beyond partisan protectionism
The framework described above assumes the ability to develop a new
political vision that can focus on long-term goals, renounce 20th century
social categories and encourage the opening up of a European welfare
services market through state and market cooperation. This political
initiative is consistent at the European level, but less so nationally. In order
to respond to requests for innovation and political initiative, both relevant
and accountable, a European space has to be opened up to political parties,
so that they may reformulate their programmes at the European level in a
consistent manner, and ultimately internalise goals of openness and intertemporal consistency in their domestic programmes as well.
The fact that the European Union is still basically inter-governmental
fuels interest in heterogeneity and keeps European parties from having a
clear agenda. National parties that have regrouped at the European level all
know that their preferences – and those of their voters – are essentially
upheld by their co-nationals, regardless of party affiliation, more so than by
their own political allies in other countries.
The functional and segmented nature of jurisdiction within the
European Union is one of the factors currently hindering the development
of European parties. Such parties, insofar as they are general players, put
forth broad visions of society that connect a variety of different interests
and different areas of activity, and that therefore do not lend themselves
readily to the functional nature of European initiatives. That said, when
addressing the issue of European welfare systems, broader social visions
are difficult to avoid. Empirical surveys have furthermore shown that
citizen and party positions on Europe are not only determined by national
origin, but that a form of ideological polarisation is on the rise around leftand right-wing lines that is not being expressed directly through
conventional opposition between capital and labour, but upstream from
that, as openness versus protection. Analysing voting patterns in the
European Parliament shows that it is the opposition between ‘regulators’
and ‘open market supporters’ that has determined the outcome of many a
debate.
PARTISAN PROTECTIONISM | 29
Integrated welfare systems require that a proper state-market mix be
defined. This mix must be non-ideological, despite the fact that state and
market have for decades now been the focus of ideological confrontation.
Building a welfare service market with publicly set goals and regulations
therefore needs to involve all major parties represented in the European
Parliament.
This process must start at the national political level. Earlier in this
chapter, I posited the view that national politics, which currently play a
determining role in the generation of citizen support for the European
Union, are conditioned by a specific operating principle that I have called
‘partisan protectionism’. Within this principle, the right and left can be
distinguished from one another by the fact that they protect capital and
labour respectively – and therefore resist openness – while exposing the
other production factor to external competition. Careful reading of the
positions put forth by national governments in discussions on Europe, and
more importantly still, of the policy stances they uphold on their own
ground, that of national parliamentary debate, illustrates the explanatory
powers of this partisan protectionism concept, which is in fact the coming
together of the two forms of political polarisation we observe today: the
coming together of demands for closure as opposed to openness, and
demands for left-right polarisation. The political maturity required to
overcome constituency protectionism has to do with how both right and
left define their positions. More specifically, it has to do with the fact that
the left needs to define itself as the political power upholding an open
welfare service provision and labour market operation model – rather than
express protective functions solely in terms of closed economies and
markets, while the right needs quite as provocatively to open up capital
markets to competition. It is only through an opening up of welfare
provision to private market players that the left will prove able to save the
social state. Just as exposing corporations to competition is the only way
the right can guarantee that nationality doesn’t become an obstacle. And it
is only through the joint contribution of both left and right thus defined
that an effective and non-national welfare provision system may emerge.
I am basically convinced that it behoves left- and right-wing
politicians with a vision to formulate social programmes that provide for
welfare system reform and the comprehensive opening of capital markets
so that state and market can work together, each serving the other, and
then resume confrontation, without antiquated diversions, as to what
European citizens want in terms of equity or individual freedoms.
30 | CARLO BASTASIN
References
Davies, G. (2006), The Process and Side-Effects of Harmonisation of European
Welfare States, Jean Monnet Working Paper No. 2/06, Jean Monnet
Center for International and Regional Law and Justice, NYU School
of Law, New York.
European Commission (2009), The Economic Crisis: Its impact on Member
States and how they are responding to it, Occasional Paper No. 6-2009,
Brussels.
Ferrera, M. (2006), speech at colloquium on The Social Dimension of the
European Union: What are the Prospects?, Centre d’Analyse
Stratégique, Bureau du Premier Ministre, Paris, 23 October.
Liddle, R. and F. Lerais (2007), Europe’s Social Reality, A consultation paper
from the Bureau of European Policy Advisers (BEPA), European
Commission, Brussels.
Schmidt, V. (2006), Democracy in Europe. The EU and National Polities,
Oxford: Oxford University Press.
3. A MORE SOCIAL EU:
ISSUES OF WHERE AND HOW
MAURIZIO FERRERA & STEFANO SACCHI*
Introduction
Over the last few years, the two enlargements and the three referenda on
new treaty texts have prompted a far-reaching debate on social Europe. To
a large extent this debate has focused on the problems and prospects of
national welfare regimes: their persistent difficulties, their comparative
performance and their reform trajectories. But discussion has also focused,
at least in part, on the social dimension of the EU proper: on what might be
called the ‘social EU’.
This chapter explores this second topic, the social dimension of the
European Union as a political entity in its own right. In the process, we
shall try to answer two sensitive questions:
Do we need a more social EU, that is, to engage in more
supranational activism in the social sphere?
And if so, why and how?
1.
The need for a more social European Union
Our answer to that first question is straightforward: yes, we do need a
more social EU. We believe this to be the case for three broad reasons: the
first has to do with social justice, the second with economic efficiency and
the last with the legitimacy of the EU polity and its ability to command
widespread positive support among European citizens.
We gratefully acknowledge research assistance by Krzysztof Nowaczek and
warmly thank Fabrizia Peirce for her valuable help in producing the final version
of this chapter.
*
| 31
32 | FERRERA & SACCHI
First, we need a more social EU in order to secure a fairer, more
equitable distribution of life chances for EU citizens, both within and
between member states. This is the ‘social cohesion’, or ‘social justice’
rationale. According to the treaties, the EU has a broad mission, that of
promoting economic and social progress (Article 2, Treaty on European
Union). Unless one believes in a naïve version of the trickle-down effect of
growth, the pursuit of economic prosperity through efficient and open
markets should thus be accompanied by an agenda for social progress,
resting on key values (such as fairness, justice or social security) that are
widely shared and deeply rooted in Europe’s political cultures.1 While
there can be no doubt that this agenda includes areas and policies that
legally come under national jurisdiction, it should be equally clear that the
EU has a role to play, both directly (by exercising its legal powers to sustain
and complement national social justice agendas) and indirectly (by
mainstreaming, as it were, social cohesion/justice considerations within its
own growth and jobs agenda, more so than it seems to have done so far
under the new Lisbon strategy).
Second, we need a more social EU in order to improve the
functioning of the internal market, and thus generate more growth and jobs
(this is the ‘economic efficiency’ rationale). A wealth of political economy
research has shown that social policies can play an important role not only
as redistributive instruments and vehicles for social and political
consensus, but also as ‘productive factors’. This was one of the original
assumptions of the Lisbon strategy and the ‘modernisation’ agenda set
forth by the European Commission in the 1990s. At the theoretical level the
positive (i.e. efficiency-enhancing) effects of social policy can be sketched
out relatively easily: social insurance allows for riskier educational and
occupational choices that increase the expected lifetime income of
individuals, regardless of the risk-taking outcome: “Under the protection of
However crude the indicator, it is telling that 17% of all European respondents
listed the gap between the rich and the poor as one of their three main current
concerns when offered a choice of 17 items, including pensions, terrorism, health,
immigration, crime, the environment, globalisation and economic growth (see
Eurobarometer, 2007b). In a more recent survey a vast majority of Europeans (87%)
agreed on the following statement: “There should be policies ensuring that the gap
between the rich and the poor is reduced significantly in our country”
(Eurobarometer, 2008a).
1
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 33
the welfare state, more can be dared”, to quote Hans Werner Sinn (1995, p.
507). At the practical level, however, identifying which policies can
enhance productivity and competitiveness (and how exactly they do so) is a
difficult task, as is quantifying the ‘costs of no/non-social policy’, or having
one that is too limited, as illustrated by the ongoing debate on the actual
effectiveness of active labour market policies. But the tasks are not per se
impossible, and certainly such a pars construens is required (at the EU level)
to offset the pars destruens of highlighting the negative effects that may stem
from a status quo of social protection schemes in member states.
Thirdly, and possibly most importantly, we need a more social EU in
order to secure continuing support for the integration process on the part of
an increasingly worried public (and this is the ‘social and political
legitimacy’ rationale). Recent opinion polls have provided growing
evidence that the EU is perceived as a potentially dangerous entity by a
majority of its citizens, as a threat to national labour markets and social
protection systems, as a ‘Trojan horse’ serving the malevolent interests of
globalisation.2 Some initiatives on the part of the European Commission,
such as the initial drafting of the Services Directive and some rulings by the
European Court of Justice, as in the Viking, Laval and Rüffert cases, were
received with great anxiety by large segments of the EU citizenry,
particularly those more exposed to the consequences of economic opening.
Mass perceptions can be factually wrong, but they do play a crucial role in
politics. We know that post-war social protection systems and the welfare
state have created extraordinary bonds between European citizens and
their national institutions, bringing about a form of close allegiance, based
on the institutionalised exchange of material benefits for electoral support.
The EU, conversely, has been rather weak in terms of identity and
allegiance-building. What neo-functionalist thinkers and statesmen had
hoped for, and sometimes even forecast, never actually happened:
European citizens have not systematically shifted their loyalties from
domestic to supranational institutions. What binds European citizens (i.e.
citizens of EU member states) to the EU is in fact a different kind of loyalty:
a derived, secondary allegiance, which persists only as long the EU is
2 As early as 2006, over 70% of all European citizens feared that ‘the building of
Europe’ might entail the transfer of jobs to other member countries with lower
production costs, while 50% feared that it might entail the loss of social benefits
(see Eurobarometer, 2007a).
34 | FERRERA & SACCHI
capable of providing resources to its member states, thereby reinforcing the
direct, primary allegiance that links members of national political
communities to their domestic institutions. The initial division of labour
envisaged by the founding fathers of the European Economic Community
(EEC) in 1957 had precisely this focus: the Community was to promote
economic prosperity by opening markets and generating economies of
scale, thus providing member states with resources they could use to
power their own social protection systems, to engage in (welfare) statebuilding – or state-rescuing, in the wake of the Second World War, to echo
Alan Milward (1992). As we shall see, in recent decades this division of
labour has collapsed, and the European (economic) integration process has
tended to encroach upon domestic social solidarity institutions, without
rebuilding at the EU level what was being constrained domestically. Hence
the widespread concerns that revolve around European construction.
In short: if voters’ anxieties are not alleviated, if they are not
convinced that ‘the EU cares’ (through direct and indirect action, or nonaction), the integration process may be seriously de-legitimised and
jeopardised by xenophobic sentiments and neo-protectionist demands
voiced by those social groups that are most directly affected by economic
opening. The economic crisis has undoubtedly intensified this challenge.
2.
How to build a more social EU
The three rationales we have identified to show that we require a more
social EU are analytically distinct, but they are of course interrelated and
mutually re-enforcing. Judging by documents and official statements (such
as the Presidency Conclusions of the 2007 Spring Council, the Berlin
Declaration, signed on the 50th anniversary of the Treaty of Rome or the
new Article 2 of the Treaty on European Union – Article 3 of the
consolidated version – which states that the Union is based on “a highly
competitive social market economy”, promoting social justice and
protection), they now seem to elicit a relatively broad consensus among
both national and Community policy-makers. By the same token, opinion
polls show that European citizens are quite unhappy with the EU’s
performance in the social field, and combating poverty and unemployment
are consistently ranked as the top two actions that the EU should engage in
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 35
as a matter of priority.3 Recent surveys make it very clear that EU citizens
want the EU to deliver more and better in the social field: in late 2008
employment and social affairs was the policy area with the greatest
discrepancy between the perceived and desired resources spent from the
EU budget (Eurobarometer, 2008b); in the summer of 2009, 34% of
respondents asked for greater financial commitment from the European
Social Fund (Eurobarometer, 2009). Moreover, a European welfare system,
whatever that may mean, is seen as the best strategy to strengthen
European citizenship (better than, among other things, adopting a
European constitution).4
The problem is, where do we go from here? Answering our second
question – provided that we need a more social EU, what purpose should it
serve and what form should it take? – is indeed more complex. In which
areas, exactly, should the social dimension of the EU be strengthened?
What are the social challenges that require a response at the EU level rather
than at national levels? In our quest for an answer, it may prove useful to
recall a distinction often used in past debates on ‘Social Europe’, which
remains heuristically valid: the distinction between common and similar
social challenges.
Common challenges originate from a single exogenous factor or set of
factors (e.g. cross-border liberalisations). These challenges affect all
member states at the same time and require some type of joint response
(national solutions are sub-optimal). It is on this front that a stronger social
EU is needed urgently.
“The protection of social rights” and “the fight against unemployment” are the
two items ranked the lowest in a poll where respondents were asked to assess EU
performance in a set of 15 policy areas including, inter alia, the protection of
human rights, the fight against terrorism, equal treatment of men and women, and
the promotion of democracy and peace in the world. (“Ensuring economic growth”
also ranked poorly.) See Eurobarometer (2006). As for the steps the EU should take
as a matter of priority, see for instance Eurobarometer (2007c) and Eurobarometer
(2008a). Still, what the EU currently does in the area of employment and social
affairs is positively evaluated by a majority of respondents in Eurobarometer
(2009).
3
4
See QA20, Eurobarometer (2006).
36 | FERRERA & SACCHI
Similar challenges, on the other hand, originate from largely
endogenous dynamics (e.g. demographic ageing or changing family and
gender relations) and can be met through different, path-dependent
national responses. On this front, a stronger social EU is less urgent, but
can still play a crucial role, with some qualifications.
3.
Supplementing the internal market with social rights
What is the most pressing common challenge currently confronting national
welfare states? Undoubtedly, it is the internal market. In recent decades,
and in the past ten years in particular, the internal market (and more
specifically the free movement of labour and services) has come to strain
the social policy and employment regimes of member states. Recent
enlargements have significantly accelerated this process. As we have seen,
the original treaties envisaged a division of labour between supranational
and national levels: the Community was to be instrumental in opening up
markets and helping achieve otherwise unattainable economies of scale, so
as to generate resources that member states could use in the
institutionalised exchange of social benefits – flowing from their national
welfare institutions – for regime support on the part of their domestic
political communities. “Keynes at home, Smith abroad”, as Robert Gilpin
(1987, p. 355) aptly dubbed this kind of embedded liberalism arrangement.
This justified the weakness of the social provisions in the Rome Treaty:
from equality of treatment for men and women (which incidentally was not
meant to bestow rights directly upon citizens, but rather to ground
supranational action and guarantee a level playing field for European
companies) to the coordination of social security regimes. All the social
provisions and articles contained therein were instrumental in the
dismantling of non-tariff barriers to trade and the creation of a higher
economic order featuring unconstrained economic trade flows. However,
this supranational liberal order rested upon, or rather was embedded in
national welfare states that were to be equally unconstrained in terms of
social regulation capabilities, and in particular would not be constrained by
the supranational authorities. This was the rationale behind the paucity of
social provisions in the Rome Treaty, and for the economic instrumentality
of those few included in it: social policy was the business of national
institutions only. Put differently, this division of labour implied separating
the jurisdiction between the supranational and national levels, thus
establishing ‘mutual non-interference’ between market-making and
market-correcting functions. European competition law and the four
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 37
freedoms were not supposed to impinge upon member states’ sovereignty
in the social sphere (Giubboni, 2003).
This did not last. Firstly, international political economy conditions
have changed since the 1970s, and the embedded liberalism compromise
has floundered. Moreover, and more importantly still as regards European
integration, the Community legal order has been constitutionalised – to
quote Joseph Weiler (1999). More specifically, the supremacy of
Community law over domestic legislation has, along with direct effect, torn
the initial division of labour to pieces: if Community law trumps national
law, then provisions geared to fostering unconstrained competition (i.e. the
Treaty provisions) trump social regulation, as enshrined in national
constitutions and laws, and ECJ judges, contrary to national constitutional
judges, will be constrained in balancing economic and social interests
whenever these clash (Scharpf, 2009). This state of affairs has of course
become more apparent as the economic integration process has deepened:
from the White Paper on the internal market through to the Single
European Act and the Maastricht Treaty, and then to EMU, the integration
of European economies has progressed at a spectacular pace, without being
matched by anything similar in the social realm. What we have tried to
argue so far is that reasserting the original competence allocation – marketmaking with the EU, social policy with the member states – simply will not
do the trick, since social policy at the national level is no longer safe from
‘intrusion’ (or ‘infiltration’, as Gérard Lyon-Caen puts it (1992)) by the
European economic constitution, as many ECJ rulings have by now made
quite clear (Ferrera, 2005).
When it comes to social protection systems, it is the free movement of
labour and services that poses the greatest challenge to the viability of
domestic social solidarity arrangements as we know them, even though it is
noteworthy that the ECJ has not always operated as a ‘market police force’,
and has on several occasions granted some degree of ‘immunity’ against
European market law to national welfare institutions and practices.
However, in the absence of a Treaty ‘hook’, it has done so on the grounds
of legal arguments that may well be overridden in the future. In addition
member states are investing a lot of energy in cushioning their social
protection systems against challenges stemming from European law,
whether by not complying with rulings, agreeing among themselves to
change European law or even failing to introduce new social programmes
that could subsequently become the object of European court action. This
may well be one of the reasons why such issues have not yet come to the
38 | FERRERA & SACCHI
fore of public debate in Europe and remain confined to insider circles: their
potentially disruptive outcomes have so far been buffered by member
states’ reactions. But how long can this last? Member states may be
compared to those cyclists who track stand – expending a lot of energy in
order to maintain their position.
Let there be no mistake: freedom of movement for persons and
services has opened up opportunities and brought about tremendous
benefits for individual citizens, despite the challenges to national welfare
systems. If unregulated, however, this enhanced freedom for individuals
may come at the cost of severe systemic disruptions, or even failure –
which may in turn result in diminished welfare provision for all. It is
certainly a good thing that Mrs Watts and many in her situation all over
Europe can now get prompt treatment abroad paid for by their own
domestic healthcare schemes; however, when this comes at the risk of
disrupting a basic organisational tool of contemporary health systems, i.e.
waiting lists, clearly some direction is called for.5
To some extent, the European Union is experiencing a ‘social
question’ (as well as a ‘governance issue’) that is not too dissimilar from
that experienced by European nations in the second half of the 19th
century, when the ‘freedom to work’ became a universal civil right and
local labour markets merged to give rise to single ‘domestic’ labour
markets, which were then subjected to common standards (labour laws,
unemployment and more generally social insurance, national labour
exchanges, etc.).
In his groundbreaking historical analysis of modern citizenship, T.H.
Marshall (1950) suggested that the evolution of this institution involved a
two-fold process of fusion, and of separation. The fusion was geographical
and entailed the dismantling of local privileges and immunities, the
We refer here to the ECJ ruling in the Watts case (C-372/04, decided on 16 May
2006). The Court ruled that a refusal to grant prior authorisation for treatment
abroad paid for by domestic authorities could not be based solely on the existence
of waiting lists intended to allow for the planning and management of hospital
care supply on the basis of predetermined general clinical priorities, without there
having been an objective medical assessment of the patient’s condition. Where
delays arising from such waiting lists appeared unacceptable, in the light of the
patient’s assessed condition, the competent institution could not refuse
authorisation for treatment abroad.
5
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 39
harmonisation of rights and obligations throughout the national territory
concerned and the establishment of a level playing field (the equal status of
citizens) within state borders. The separation was functional and entailed
the creation of new sources of nationwide authority and jurisdiction, as
well as new specialised institutions for the implementation of that
authority and that jurisdiction at a decentralised level.
The present historical phase is reproducing this double challenge of
fusion and separation under new guises. As was the case domestically 150
years ago, freedom of movement can now be a tremendous trigger for
growth and job creation in the EU’s internal market, and can therefore
enhance welfare for European citizens. But without adequate supranational
norms and governance (a stronger ‘social’ EU), this new market will not
work effectively and in fact runs the risk of reducing individual welfare.
Again, fusion requires institutional innovation in order to fully bear fruit
(under the economic rationale), and to safeguard the equitable distribution
of such outcomes (under the social justice rationale) in a context of social
peace and political stability (under the legitimacy rationale).
Managing the social implications of freedom of movement (or, to put it
another way, securing the social complements of the internal market) ought
to be the primary goal of a stronger ‘social’ EU, which would seek to
eschew the risk of biting the hand that feeds it by not jeopardising the bond
between citizens and their welfare states, and being made to bear the blame
for whatever storm member states would then have to face. On the basis of
what we have discussed so far, it is clear that only the EU can perform this
task. But how should it go?
There already is, of course, an acquis of hard norms that have been
introduced over time precisely (or primarily) with a view to paralleling
market ‘fusion’ with a modicum of social harmonisation. Some of these
norms (such as the Directives on non-standard employment, or on gender
discrimination) also address new social risks in a post-industrial society.
But what are the new and further steps that should be taken in this
direction in the current post-industrial (and post-enlargement) context –
also considering the deep impact of the crisis? We believe that the
following would be the most natural candidates for the task at hand:
•
Establishing (or strengthening) a common floor of labour law
guarantees, especially for non-standard, irregular workers;
•
Agreeing on common definitions and criteria regarding those areas
(such as social security, services of general interest, etc.) that are
40 | FERRERA & SACCHI
particularly sensitive to greater freedom of movement, thus finding a
proper balance between the goals of ‘dismantling local immunities
and privileges’ and that of preserving legitimate national diversities;
•
Establishing common rules on a minimum wage on the one hand, and
launching a Community initiative on a generalised minimum income
guarantee on the other, in order to protect the most vulnerable;
•
Updating and fine-tuning social security regimes for migrant
workers;
•
Establishing something along the lines of a ‘European Audit Board’
for the oversight of contractual practices, in order to avoid social
dumping.
Progress on these fronts was advocated by a declaration on
“Enhancing Social Europe” signed by the Labour ministers of eight
member states (Belgium, Bulgaria, Greece, Spain, France, Italy, Cyprus and
Hungary) in February 2007 – to little avail, in the end. Still, on each of these
fronts a number of relatively detailed proposals has begun to circulate. To
name but a few, the issue of a common floor of labour law guarantees,
dealing with the working conditions of all workers, regardless of their
work contract (and therefore also applying to irregular workers) was put
forward in the 2006 Green Paper on labour law. The Lisbon Treaty,
meanwhile, includes a Protocol on services of general interest and retains
the so-called horizontal social clause written into the Constitutional Treaty
Article 9 of the Treaty on the Functioning of the European Union, which
introduced a form of ‘social mainstreaming’ by stating that, in
implementing its policies, the Union should take into account social
requirements (Ferrera, 2009).
The issue of a minimum income guarantee is also important, and
deserves more attention insofar as it may well be a very promising way of
securing the social complements of the internal market, according to our
definition of the approach required. This might take the form of
Community-wide legal provisions regulating minimum income schemes at
the national level (a Community Directive on this topic was originally put
forward by the Commission in 1992, but was downgraded to mere
communication status following member states’ opposition). This would
regulate, and possibly improve, benefit provision in countries where such
schemes exist, and spur into action those (such as Greece, Italy and
Hungary – ironically, three of the signatories to the plea to “Enhance Social
Europe”) that do not have a generalised means-tested scheme. This might
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 41
also take the form of a pan-European welfare scheme, locally administered
but stemming directly from the EU. Certain concrete proposals along these
lines have been circulating for some time in academic circles.6 It is not our
intention to assess the pros and cons of this thought-provoking idea here,
knowing that in any event it would need to be carefully crafted lest it
generate opportunistic behaviour on the part of citizens and national
governments alike. It could however be instrumental in building some
form of direct allegiance between European citizens and the EU, thus
replicating at the supranational level, in a sense, the formidable bonding
tool constituted of social protection schemes at the national level.
Another measure that addresses common challenges (albeit those
posed by globalisation and now the economic crisis, rather than the internal
market) and that — if well crafted and publicised — could help forge
bonds between the EU and its citizens, thus providing legitimacy to the
former, is the European Globalisation Adjustment Fund launched at the
beginning of 2007. This aims at providing European workers made
redundant because of globalisation (under trade-induced mass layoffs)
with time-limited direct support in finding new jobs. The idea here is that
funding is provided by the Community budget (more specifically, the
scheme is co-funded by the EU and member states) only to active labour
market policies. So far, the Fund seems to have been rather effective for
those workers who have had access to the measures financed by it (some
70% of the 10,000 workers involved in 2008 have been re-employed), but it
has on the whole delivered very little: out of €500 million available every
year, only less than €50 million were distributed in 2008, owing to the lack
of requests and the slowness of the procedures. In June 2009, the Fund
Regulation was changed in order to make it a tool to counteract the
economic crisis, thereby lowering the threshold of layoffs necessary to
qualify (from 1,000 to 500), raising the share of co-funding on the part of the
EU (from 50% to 65%), extending the period for which the funding is
granted (from 12 to 24 months) and broadening the range of its
applicability to crisis-related mass layoffs.
See for instance, discussions published in various issues of the Journal of European
Social Policy in 2001, with Philippe Schmitter & Michael Bauer’s (2001a) proposed
‘Euro-stipendium’, the ensuing criticism by Philippe Van Parijs & Yannick
Vanderborght (2001), as well as by Manos Matsaganis (2001), with a rejoinder by
Schmitter & Bauer (2001b).
6
42 | FERRERA & SACCHI
It is to be hoped that these changes will be accompanied by a
quantum leap in the communication strategy of the European Globalisation
Adjustment Fund, as until now this strategy has been virtually nonexistent. The result is that over 70% of Europeans, when interviewed,
declare they have never heard or read anything about it (Eurobarometer,
2009). This is in stark contrast to the strategy of massively publicising the
European Social Fund, which is administered through national and
regional authorities, while the European Globalisation Adjustment Fund,
being directly administered by the EU, could be an important source of
legitimacy for the Union as a political entity in its own right. Still, if the
European Globalisation Adjustment Fund is simply there to co-finance
existing national measures for which full credit is claimed by member
states, the legitimacy return for the EU runs the risk of being negligible, if
not outright negative (as would be the case if an application by a member
state were to be rejected by the Community).
Be that as it may, in addition to important – in substantive and
symbolic terms – but rather small-scale initiatives, what really matters at
this stage is the forging of a consensus around a general concept: that of
putting in place a basket of basic common social standards applicable to the
entire EU space, as well as setting up the regulatory and governance
prerequisites for the mutual recognition of social policy and employment
regimes across member states. Without shared requirements and reciprocal
trust, mutual recognition is impossible, and this is all the more important
now, since the economic crisis has sparked a return to domestic, nationspecific interventions in the social field.
Drawing, once again, inspiration from the history of modern
citizenship, a new regulatory and governance regime for the EU’s freedom
of movement legislation should be interwoven with a more basic
institutional fabric: Fundamental Rights, as set out in the Nice Charter. In a
way, the fact that the Charter is deemed to have the same legal value as the
treaties can be seen as another form of ‘mutual recognition’ on a symbolic
level. While member states reaffirm – in the Treaty of Lisbon – their
acceptance of the EU’s freedom of movement and competition regime, the
Charter is the tool through which the EU acknowledges the supremacy of
rights and their centrality in the EU’s construct and mission, while
accepting that member states may have their own legal proclivities
concerning social citizenship, which are part of the basic EU constitutional
order.
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 43
That the Charter has been given full legal status is an immensely
valuable fact, since it will allow the ECJ to take fundamental social rights
into account in its rulings, and thereby enable it to play its role in terms of
constitutional balancing. One may regret the fact that this is merely recalled
in the Treaty of Lisbon, however understandable it may be in light of
British and Polish opposition. Symbols can go a long way in politics. A
charter of rights that is swept under the carpet does not exactly fit the bill.
4.
Less rhetoric, more forward-looking initiatives
Let us now briefly turn from common to similar challenges. Here, as
mentioned above, there is less need and scope for direct and ‘hard’
supranational activism, but the EU can still play a significant role in
encouraging and facilitating the modernisation of national social models,
primarily in the context of existing demographic challenges. To a large
extent, this is already happening through a set of instruments, most notably
the Open Method of Coordination (OMC) and its various social processes.
One of the latest institutional innovations on this front has been the
adoption, by the European Council, of a number of solemn ‘pacts’, in which
member states have committed to achieving shared goals and
strengthening cooperation in the field of youth policies and youth
mainstreaming (2005), equal opportunities and work-life balance (2006),
and family policy (2007).
Even though there has been some disappointment regarding the
effectiveness of these ‘soft’ instruments for the joint management of
challenges of this ilk, they do provide valuable institutional capital on
which to build, and their performance to date has been rather good,
assuming one relinquishes the perfectionist, classic Community method
angle.7
Without entering into the technical debate about how to fine-tune soft
coordination from both a substantive and procedural viewpoint, some
general suggestions come to mind for the purpose of stimulating debate
and further thinking on this issue.
The most thorough empirical assessment of social OMC processes so far is to be
found in various chapters of Zeitlin & Pochet (2005) and Heidenreich & Zeitlin
(2009), in particular in Jonathan Zeitlin’s conclusions to both volumes.
7
44 | FERRERA & SACCHI
The first two suggestions regard the OMC processes:
•
Incorporating into the draft of the Integrated Guidelines for National
Reform Programme, alongside macroeconomic, microeconomic and
employment guidelines, a social chapter, so as to induce both
Community and national policy-makers to take all angles into
account;8 and
•
Introducing some ‘OMC+’, i.e. coordination processes supplemented
with tangible and financial incentives. This is already at least partially
happening with both the employment and the inclusion processes,
but more could be done, especially as regards training and lifelong
learning, child poverty and childcare in general.
A third suggestion regards the new ‘pacting’ approach that seems to
be taking root alongside (or in anticipation of) more structured forms of
open coordination. If properly designed, properly communicated and
properly implemented, pacts and/or alliances centred around similar social
challenges confronting all or most member states can indeed play a
significant role and contribute to the strengthening of a social EU.
Assessing the actual implementation of such initiatives is premature, as
most were only launched in the past few years. But to date their design and
the way in which they have been communicated to the public at large have
been extremely poor. The initiative on the European Alliance for Families, a
platform for exchanging information and experience on family-friendly
policies received only a cursory description in the Presidency Conclusions
of the 2007 Spring European Council Meeting and was not supported by
any recognisable (let alone effective) communication campaign (but there
is, however, a dedicated website).9 This risks rapidly eroding the promising
An attempt by some member states, the European Commission and the European
Parliament to include some ‘social’ objective in the Lisbon Strategy for Growth and
Jobs turned out to be unsuccessful, due to the opposition of many member states.
The only change so far has been that the member states are expected to refer to the
flexicurity principles elaborated by the Commission when drafting their National
Reform Programmes 2008-10.
8
In May 2009, an Employment Summit was held with the participation of national
ministers, which confirmed the commitment to mobilise all EU funds and
institutions to boost employment and social inclusion in the light of the financial
crisis. Again, however, the Summit was not accompanied by any effective
communication campaign.
9
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 45
potential of such instruments or, worse still, turning them into yet another
signal of the EU’s superficiality, opportunism and mere rhetoric in all
matters that have to do with welfare and social policy. Why not take these
instruments more seriously and re-configure them into a single “Pact for a
New Social Europe”, that could serve as a general symbolic and
institutional framework for all OMCs? If this scenario does not prove
feasible, then it might indeed be advisable to renounce all further
proliferation of pacts and alliances, in order to avoid overload, confusion
and the possible loss of legitimacy in this field (the EU’s ‘caring’
dimension) – a field that should generate, rather than erode, EU legitimacy.
The fourth and final suggestion is that of considering the launch of a
new policy initiative at the supranational level, with a strong ‘signalling’
potential on the three fronts mentioned at the beginning of this chapter:
justice, legitimacy and efficiency. The most promising move in this
direction would be one geared towards young Europeans. As we have
seen, the EU already has a youth agenda, but it should consider taking
specific action, and implement ground-breaking measures. Drawing on a
paper prepared by the Bureau of European Policy Advisers to the President
of the Commission on “Investing in Youth” (Barrington-Leach et al., 2007),
a number of innovative measures with a high legitimising potential and the
ability to reconcile social justice and economic efficiency could be
considered for direct Community action. This might involve a ‘European
capital grant’ to all children, that is a universal grant awarded to every
baby at birth, which could be topped up (to a certain level) by parents and
made available for use when the child reaches the age of 18; or a ‘European
Early Childcare Fund’; or a European student loan scheme, which could be
made available through the European Investment Bank.
One rather alarming indication stemming from the latest
Eurobarometer polls is that there is a widespread belief among all
respondents that young people’s life chances will be worse than those of
their parents (Eurobarometer, 2007b). In the summer of 2009, almost half of
respondents expressed strong concern about the prospect of their children
losing their jobs in the wake of the recession (Eurobarometer, 2009). A
stronger social EU should see to it that this does not happen: investing in
youth should indeed become its flagship cause, its leading and most clearly
recognisable priority.
46 | FERRERA & SACCHI
References
Barrington-Leach, L., M. Canoy, A. Hubert and F. Lerais (2007), Investing in
youth: an empowerment strategy, Bureau of Economic Policy Advisers,
Brussels.
Eurobarometer (2006), Special Eurobarometer 251, The future of Europe, May.
Eurobarometer (2007a), Standard Eurobarometer 65, January.
Eurobarometer (2007b), Special Eurobarometer 273, European social reality,
February.
Eurobarometer (2007c), Standard Eurobarometer 66, September.
Eurobarometer (2008a), Flash Eurobarometer 227, Expectations of European
citizens regarding the social reality in 20 years’ time.
Eurobarometer (2008b), Standard Eurobarometer 70, October.
Eurobarometer (2009), Special Eurobarometr 316, European Employment and
Social Policy, July.
Ferrera, M. (2005), The Boundaries of Welfare. European Integration and the
New Spatial Politics of Social Solidarity, Oxford: Oxford University
Press.
Ferrera, M. (2009), “The JCMS Annual Lecture: National Welfare States and
European Integration: in Search of a Virtuous Nesting”, Journal of
Common Market Studies, Vol. 47. No. 2, pp. 219-233.
Gilpin, R. (1987), The political economy of international relations, Princeton, NJ:
Princeton University Press.
Giubboni, S. (2003), Diritti sociali e mercato. La dimensione sociale
dell’integrazione europea, Bologna: Il Mulino.
Heidenreich, M. and J. Zeitlin (eds) (2009), Changing European Employment
and Welfare Regimes, London: Routledge.
Lyon-Caen, G. (1992), “L’infiltration du Droit du travail par le Droit de la
concurrence”, in Droit Ouvrier, pp. 313-359.
Marshall, T.H. (1950), Citizenship and social class and other essays, Cambridge:
Cambridge University Press.
Matsaganis, M. (2001), “The Trouble with the Euro-Stipendium”, Journal of
European Social Policy, Vol. 11, No. 4, pp. 346-348.
Milward, A. (1992), The European Rescue of the Nation-State, London:
Routledge.
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 47
Scharpf, F. (2009), “Legitimacy in the Multi-level European Polity”,
European Political Science Review, Vol. 1, No. 2, pp. 173-204.
Schmitter, P. and M. Bauer (2001a), “A (Modest) Proposal for Expanding
Social Citizenship in the European Union”, Journal of European Social
Policy, Vol. 11, No. 1, pp. 55-65.
Schmitter, P. and M. Bauer (2001b), “Dividend, Birth-Grant or Stipendium?
– A Reply”, Journal of European Social Policy, Vol. 11, No. 4, pp. 348352.
Sinn, H.W. (1995), “A Theory of the Welfare State”, The Scandinavian Journal
of Economics, Vol. 97, No. 4, pp. 495-526.
Van Parijs, Ph. and Y. Vanderborght (2001), “From Euro-Stipendium to
Euro-Dividend”, Journal of European Social Policy, Vol. 11, No. 4, pp.
342-346.
Weiler, J.H.H. (1999), The Constitution of Europe, Cambridge: Cambridge
University Press.
Zeitlin, J. and P. Pochet (eds) (2005), The Open Method of Co-ordination in
Action, Brussels: Peter Lang.
4. ECONOMIC POLICY COORDINATION
AND FAILURES IN EUROPE TO COUNTER
RECESSION
FIORELLA KOSTORIS*
I had too often observed the limits of coordination. It is a method which promotes
discussion, but it does not lead to a decision. It does not allow us to transform the relations
between human beings and between countries when union is necessary. It is the expression
of the national power, as it is; it cannot change it, it will never create unity.
J. Monnet, Mémoires, Vol. I, 1976
Introduction
Economic policy coordination is not a clear-cut concept. This chapter first
examines the different kinds of economic policies that are currently
considered subject to coordination pursuant to Article 99 of the European
Treaties and those which, according to the subsidiarity principle, should be
common policies, being the exclusive competence of the Union, or should
be coordinated between member states, being shared competences.
Secondly, it shows under which conditions economic policy coordination is
strong or weak, using the Stability and Growth Pact as a specific case study.
It then analyses the implications of these general conclusions in order to
show whether economic policy coordination in the EU is able to meet the
challenges of the current recession. It concludes that European monetary
policy – a common action in the single currency zone – is well-suited to
Two previous versions of this paper were presented respectively in Berlin, at a
seminar at the Freie Universität in May 2009, and in London, at a breakfast speech
at the Business Club Italia in July 2009. The author is grateful to the participants of
those meetings for their stimulating comments and questions.
*
48 |
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 49
addressing the systemic negative demand shock we see now. But European
fiscal policy coordination is inadequate, because its basic instrument, the
Stability and Growth Pact, is ill-conceived and needs urgent reform. The
coordination of financial policies also needs to be much improved.
1.
When is coordination appropriate?
Economic policy coordination within the European Union has increasingly
come to be considered as useful, if not necessary, in debates among experts
and in the public mind. Economic policy coordination has always been
considered favourably in the European Treaties. Article 99 of the Treaties
states that member states’ policies are all “a matter of common concern”
and are coordinated “within the Council”. The same formula is repeated in
the unapproved draft of the Treaty Establishing a Constitution for Europe and
in the newly approved Lisbon Treaty. In particular, European federalists,
who support the political union of the Community and think the best way
to achieve it is by acting through Parliament from an institutional
perspective, and through the single market/single currency from an
economic viewpoint, complain that many Council decisions must be taken
unanimously. Unanimity is of course difficult to reach so coordination is
sometimes impossible.
But this fact need not affect the well-being of Europe. For instance, in
setting tax rates, if unanimous coordination is reached, the outcome is
worse than without it because, in the absence of unanimity, competition
prevails. If it is not implemented in an incorrect and illegal way,
competition is better than harmonisation, which would imply tax rates at
an intermediate level between the minimum and the maximum in Europe,
while the minimum rates, consistent with given public expenditure goals
(themselves related to market failures), would be obtained by competition.
The latter does not meet with the favour of member states, as they
prefer spending to please their electorate, whether they have to do it for
rational economic reasons or not. Thus, it is no coincidence that, among the
12 points of the Global Legal Standard OECD (2009) paper approved at the
2009 G8 L’Aquila Summit, there is one inhibiting any ‘race to the bottom’ in
labour markets or in social and environmental standards, while
international agreements are longed for. In fact, this formula hides a sort of
protectionism favouring residents versus immigrants, insiders versus
outsiders, national rather than foreign investments. It limits incentives to
attract both capital from abroad – as, for example in Ireland with
50 | FIORELLA KOSTORIS
detaxations – and workers from other European countries or from
marginalised parts of the society – by adopting mutual recognition and
country of origin principles, or by offering lower wages and potentially
smaller welfare provisions, which might nonetheless be desirable as they
are better than unemployment subsidies.
As a consequence, competition is often labelled as ‘unfair’ or ‘wild’
without explanation. It is so described in spite of the fact that the condition
of voluntary exchange holds true, no law is evaded and no objective moral
principle (as in the 10 commandments) is violated. True, the level playing
field between different European member states or between different
components of social systems is missing, but the essence of competition is
precisely to use those differences to the advantage of the most efficient
agents, inducing the others to find counterbalancing, compensating factors,
able to reduce their weaknesses, while favouring the well-being of all.
Economic policy coordination, in the current European jargon, is an
‘umbrella concept’ being applied to a very wide range of interventions. It
ranges from the exchange of information (sometimes partial, as has been
the case up to now in banking supervision), to multilateral monitoring on
the basis of commonly recognised best practices (as in the Lisbon Agenda).
It may concern agreed principles of a philosophical nature (such as those
on ethics and economics, as illustrated at the 2009 G8 Summit of L’Aquila
by the Global Legal Standard, echoing Benedict XVI’s Encyclical Letter
Caritas in veritate on matters like CEOs’ bonuses, which should be
sustainable and consistent with an appropriate degree of risk aversion).
It further concerns more practical principles expounded in proposals
regarding European institutions, for example those on Eurobonds supplied
by the EIB, tending to finance the TransEuropean Networks managed by
the EBRD. Conversely, economic policy coordination may become slightly
more factual when it is the expression of agreed intentions regarding the
management at member state level of some macro policy, such as the stillnational stabilisation actions (for example, the Council Decision of 11-12
December 2008, in line with the Commission Communication of 26
November 2008, defines the European Recovery Plan with its major
budgetary impetus worth 1.5% of GDP – about €200 billion – 1.2% of which
is provided by member states; but those are mere intentions, because EU
countries may avoid any intervention consistent with that Decision, as
indeed happened according to the OECD and the IMF estimates).
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 51
Finally, economic policy coordination ranges from co-decided rules
for fiscal deficits (as in the Stability and Growth Pact), or, more recently, for
financial policies (as in the Euro Action Plan of 12 October 2008), to truly
common actions (as is the case with monetary and competition policies).
The aim of this chapter is not to describe all these policies in detail, but
rather to identify under what circumstances European coordination is
strong and effective. Referring to the latter, the distinctions usually made
are related to the degree of rigidity observed in the corresponding
regulation, established by primary or secondary norms. For example, the
Lisbon Agenda and the open coordination method of a qualitative nature
are generally thought to be weak, while the Stability and Growth Pact and
its numerical rules are supposed to be ‘hard’ forms of coordination. It
might be said that they are both weak, perhaps not equally weak, as in this
respect the fundamental difference in European policies is between those
that are realised by the Council and those that are managed by the
Commission or by some other European technical institution, like the
European Central Bank or the European Court of Justice; this distinction
being based on the subsidiarity principle.
When externalities beyond national borders are large and require a
higher level of government capable of activating a policy, there is the
necessity of a supranational intervention and the exclusive competence of
the European Union leads to a truly common policy, which is not managed
by the Council. When cross-border spillovers or redistributive purposes at
the Community level are limited, the national public intervention is shared
with the Union and policies are merely coordinated by the Council. Finally,
in the absence of any significant cross-border externality, competences are
exclusive to member states, remain local and presumably uncoordinated.
The Council responds to national, not to European interests, as it is
composed of national policy-makers subject to the tyranny of democracy:
in a European perspective, coordinated policies are weak. Conversely, the
Commission, the European Central Bank, or any other European institution
managing a common policy, are technical authorities that do not have to be
chosen equally by voters and are independent from the executive power.
Their governing board being protected by the democratic deficit, common
policies are much stronger as a result.
Two examples of this are worth examining: monetary and
competition policies, which seem to be pretty effective, even under the
present critical economic circumstances.
52 | FIORELLA KOSTORIS
Monetary policy, since the birth of the euro in 1999, has been able to
keep inflation under control, thus establishing the reputation of the ECB.
During the whole recent financial crisis, expansionary monetary policy has
performed brilliantly in the eurozone. It has alleviated both euro and noneuro countries’ cyclical downturns, particularly in the second half of 2008
and in the current year. The ECB has been capable of reducing the recession
effects and sustaining economic activity by massively increasing banks’
liquidity in the eurozone, reducing discount rates, lengthening from 6 to 12
months the duration of banks’ refinancing at fixed rates and for unlimited
amounts and inventing new bank funding formulas, particularly through
covered bonds (debt securities issued by them and backed by mortgages).
Competition policy, since the Rome Treaty, has been a fundamental
pillar of the construction of Europe. By preventing abuses of dominant
positions in the Single Market and state aid distortions, the Commission
has been operating as an antitrust authority. Some of the Commission’s
recent actions monitoring competition have been much criticised but in fact
have turned out to be flexible and rather intelligent. For example, in
September-October 2008, Ireland appeared to violate the European rules on
state aid by guaranteeing banks’ debt issuance. The Commission did not
intervene here and rightly so, since, immediately after Ireland, Greece
passed the same policy and a few days later other member states also
followed suit. This was certainly easy to forecast, as there is full
competition in capital markets and banking, current accounts can quickly
be transferred to other eurozone member states. Finally, on 12 October
2008, a European Summit decided to adopt the same policy of guaranteeing
bank debt for the whole Union. In the end, therefore, the Commission was
extremely effective in not sanctioning Ireland and Greece for distortionary
state aid policies, knowing that competition would achieve the same
outcome as its regulatory interventions.
2.
Economic policy coordination under pressure
Exclusive EU competences are logically derived from the subsidiarity
principle appearing in the Union primary norms, and are pragmatically
defined by the European Treaties as well. There is some inconsistency
between the principles and their practical application, but neither the
former nor the latter can be easily redetermined and so for the time being
have to be considered as a given.
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 53
As indicated above, other competences, listed equally in the treaties
with some analytical inconsistency, are shared between the Union and
member states and the corresponding policies have to be coordinated by
the Council. The idea that this institution is always a source of weak
coordination finds an exception when all member states have a common
identical interest and decide to pursue their goals with a unanimous, codecided intervention. In this case, ex ante coordination is not necessary,
while ex post coordination is easy and sufficient, or, to put it another way,
ex ante rules become self-enforcing.
A typical example of this condition is what happened over the
weekend of 12 October 2008. The world’s stock exchanges were fearing
extreme volatility after September 15th when Lehman Brothers filed for
bankruptcy, but in a matter of hours European countries managed to find a
new governance formula to address their problems, namely an Ecofin
Summit consisting not of finance ministers but heads of state and
governments, for the occasion enlarged to include the British (eurosceptic)
Prime Minister Gordon Brown. They agreed on three major solutions: state
guarantees of bank debt issuance; banks’ recapitalisation and governments’
commitments to avoid their bankruptcy by buying, if necessary, all their
assets; and transitory abandonment of the market-to-market formula, in
order to strengthen the trust message of the first two initiatives,
considering that this kind of transparent evaluation may lead to confusion
between short-term liquidity and long-term solvency. The successful
political outcome was certainly facilitated by the dramatic context of the
European partners’ meeting. As indicated by the Italian Minister of
Finance, Giulio Tremonti (Sensini, 2009):
At the IMF in Washington, on October 9, which was Friday, we
understood that the London Stock Exchange could not open on the
following Monday. During the night of May 9 Iceland declared
bankruptcy. The turning point came on October 12 in Paris, when
Governments and Politics took the right initiative.
But this rapid and efficient ex post coordination would have been
impossible had each member state not had the same interest to back bank
debts and boost market confidence in a unanimously coordinated way, all
being well aware not only of the risk of contagion, but also of the threat
represented by other European partners potentially able to provide even
bigger bailouts to their banks.
54 | FIORELLA KOSTORIS
3.
A case study of the Stability and Growth Pace
In more ‘normal’ circumstances, Council coordination is generally mild,
irrespective of what might be suggested by hard regulations. Moreover, it
becomes even weaker the more ill-conceived is the governance of the
institutions that have the duty to control the stakeholders’ behaviour
involved in coordination. The less effective are sanctions and incentives
directed to those agents, the more mistaken are the intrinsic rules of the
coordinated policy.
The Stability and Growth Pact can be taken as a case study to show
the importance of these three elements. The rigidity of the Pact’s rules are
well-known, from the famous ceilings of 3% in the deficit-to-GDP ratio and
60% in the debt-to-GDP ratio (Article 104 of the Treaties), to the two 1977
Regulations shedding light on four further aspects (medium-term
objectives, derogations to the excessive deficit procedures, mitigating
factors to start the early warning procedure and sanctions), concluding
with the 2005 Pact reform. Derogations, as reformulated in 2005 by two
new Regulations, are particularly relevant in the current economic crisis:
the excessive deficit procedure does not start if there are ‘exceptional’
economic conditions, such as when the annual GDP growth rate is negative
or the output gap relative to the potential level is persistent, while the
distance of the deficit-to-GDP ratio from the reference value is temporary
and small.
To analyse the first of the three relevant aspects, it should be noted
that the governance of the Pact is ill-conceived, mainly because the decision
on whether a country is a fiscal delinquent is assigned to other, at least
potentially, fiscal delinquents. Indeed, supervised finance ministers
coincide with the supervisors and – in Juvenal’s words – who shall guard
the guards themselves? Such conflicts of interest seemed to arise in
November 2003, when the Commission wanted to start an excessive deficit
procedure against France and Germany, abundantly exceeding the 3%
ceiling, while the Council decided not to intervene, probably influenced by
the Ecofin President of that semester, Giulio Tremonti. Presumably a sort of
implicit ‘do ut des’ (reciprocity) was implemented, exchanging a current
favour towards Paris and Berlin for a future favour towards Rome. In fact,
Italy received an early warning on its excessive deficit only in July 2005,
while in four out of the five years since 2001 its deficit had exceeded 3%.
As for the sanctions system, it proved even less effective after the
European Court of Justice’s Solomonic ruling of July 2004 on the above-
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 55
mentioned 2003 controversy: on the one side, it agreed with the Council
against the Commission but, on the other, it asked the Council to revise its
Decision, considering it to be inconsistent with its previous ones. The
reputation and credibility of the Pact have consequently been diminished
because, admittedly, it appeared to be strictly applied to small countries
and freely interpreted for large, powerful ones, thus lessening the moral
weight of any sanction. Besides, the probability of sanctions decreases as
the actual number of fiscal delinquents increases, as is happening at the
moment. Finally, incentives to behave well from a deficit and debt
viewpoint are correctly identified by the Maastricht Treaty in the
convergence phase, as the member states’ ability to satisfy convergence
parameters is rewarded by entry into the Eurogroup, offering many gains
in terms of nominal stability. On the contrary, once a country is in the club,
the latter becomes non-inclusive in the sense that the treaties do not
provide any rule to exclude a fiscal delinquent from the club, and the carrot
of entering the euro area has already been eaten, while the stick of
exclusion is substituted by unlikely and ineffective sanctions.
Third, the formula of the Pact is ill-conceived. To resume its basic
rationale, described in the 1989 Delors Report, two underlying hypotheses
can be recalled. First, member states’ fiscal policies create small crossborder spillovers, not requiring common action but only some European
coordination. While this assumption does not seem to be disproved by the
empirical evidence, the second is factually more controversial. Accordingly,
national fiscal policy spillovers are negative because, within a group of
countries sharing the same currency, each member state hit by an
asymmetric shock does not take into account the effects of its expansionary
fiscal policy on the common reference interest rate. This creates a deficit
spending bias, which is opposed by the European Central Bank. The latter
ultimately succeeds in targeting European inflation, but this action raises
interest rates and brings no advantage to anybody: it is therefore better to
agree on an ex ante maximum deficit, avoiding free-riding problems.
A very simple mathematical model (presented in the Annex) conveys
this message. It shows, however, not only the Delors Report rationale for
the Stability and Growth Pact, but also its weaknesses. In particular, it
clearly indicates that an optimal ex ante fiscal policy coordination in the
Eurogroup cannot be set if three distinctions are missing: between demand
and supply shocks and between weak and strong demand shocks; between
asymmetric and systemic shocks.
56 | FIORELLA KOSTORIS
Indeed, in the optimal solution, the 3% constraint appears to be too
large when facing a negative supply shock – when essentially no deficit
spending should be allowed. It may be correct, when facing a mild
asymmetric negative demand shock, i.e. when automatic stabilisers are
sufficient to restore output at the potential, but it is finally suboptimal
when there is a strong and/or a systemic negative demand shock, hence a
discretionary expansionary fiscal policy is called for, beyond automatic
stabilisers. The coordination failure in fiscal policy is particularly absurd
when there is a systemic demand shock, because each country is then
positively, not negatively affected by the budgetary stimulus of other
partners. A good proposal would therefore consist of a further reform
under the Stability and Growth Pact, whereby the Commission and the
Council should take into consideration whether a country faces a supply or
a demand shock (strong or mild) and a common-systemic shock or an
asymmetric one.
In order to make this proposal operational, one should avoid impossible
changes to the Treaty. One should therefore amend the present formulation
of the Pact either through a different informal interpretation of the
‘exceptional’ economic conditions inducing derogations to the excessive
deficit procedures and/or through an innovative formal concept of
‘exceptionality’, defined by a new Council Regulation. Moreover, from a
political viewpoint, a double question immediately arises. How hard is it
for the European Commission and the Council to identify the nature of the
country-specific (or of the systemic) shock? And is it possible to adopt a
common methodology and harmonised European data to detect this in
every member state?
Three data sets are currently available in the Union for the guardians
of the Stability and Growth Pact, which have already been homogenised by
the European Commission Services for all EU27 countries, and have existed
for many years, though they have not been much exploited. They allow the
quick supply (although still discretionary) of measures on qualitative and
quantitative aspects of economic cycles. A negative demand shock can then
be identified by the simultaneity of the increase in the unemployment rate,
combined with the decrease in the inflation rate, while, on the contrary, a
negative supply shock is characterised by rising inflation coupled with
growing unemployment. In addition, a negative demand shock is identified
as strong, if the inverse correlation between unemployment and inflation is
accompanied by a percentage of firms declaring problems with insufficient
demand rather than insufficient profitability above the normal trend. The
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 57
strongly negative demand shock has to be considered systemic or common
to all countries belonging to the same area, if each of them shows the same
three features simultaneously. In Table 1 and Figure 1 below (with annual
frequences except for the last quarters), a strong demand shock is detected
when there is a contemporaneous upward movement in (u), a downward
movement in (π) and (D-C)/Average (D-C 1997-2008) > 10 (it should be
bigger than 1, but the variable is multiplied by 10, so as to make the graph
more easily readable).
Looking at Table 1 and Figure 1, it is immediately apparent that we
are living in the middle of a severe economic crisis. By mid-2009, firms
were constrained in their demand 50% more than in the average trend of
the previous 12 years, particularly in the eurozone. In the last 3-4 quarters
and in the current year, unemployment is increasing and inflation is
declining everywhere in the EU27. Starting with the second half of 2008, we
observe not only that the cyclical downturn is larger than those emerging in
other critical years of the period under consideration (1997-2009), but also
that this strongly negative demand shock is, for the first time, common to
all European countries. Germany, France and Italy are now all suffering
from the same disease. This was not the case in 2002-03, when a countryspecific shock hit some of the member states: the three combined
quantitative indicators, used in Table 1, suggest that in those years
Germany was the only big partner to bear a strongly negative demand
shock, unlike Italy and France. In its most critical years, the latter was
affected by a strongly negative supply shock. No doubt, if the Commission
had adopted the distinction between demand and supply shocks, it would
not have requested the early warning procedure against Germany, thereby
separating the destinies of Paris and Berlin. Perhaps a joint viewpoint
between the Commission and the Council could have been reached then,
without damaging the reputation of the Stability and Growth Pact.
58 | FIORELLA KOSTORIS
Table 1. Detrended demand-constrained (D) relative to capacity-constrained (C) business regime, unemployment and inflation
rates in some European areas (1997-2009)
Years
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2007-Q1
2007-Q2
2007-Q3
2007-Q4
2008
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009
2009-Q1
2009-Q2
Euro Area
(D-C)/
Average
(D-C 19972008) (x 10)1
14.3
11.7
12.9
7.6
10.4
13.6
14.1
9.7
9.9
6.2
3.3
3.0
3.2
3.1
3.8
6.2
3.5
4.8
6.7
9.4
14.4
13.5
15.2
u (%):
Unemployment
rate2
10.6
10.0
9.1
8.5
8.0
8.4
8.8
9.0
9.0
8.3
7.5
7.7
7.5
7.4
7.3
7.5
7.2
7.4
7.6
8.0
9.9
8.7
9.2
π (%):
Inflation
rate3
Germany
(D-C)/ Average
(D-C 1997-2008)
(x 10)1
1.6
1.1
1.1
2.1
2.3
2.2
2.1
2.1
2.2
2.2
2.1
1.9
1.9
1.9
2.9
3.3
3.4
3.6
3.8
2.3
0.4
1.0
0.6
16.2
11.5
10.9
4.2
6.9
12.1
14.3
9.9
10.9
8.7
7.4
10.0
9.3
5.7
5.0
7.0
5.1
4.1
6.7
11.3
14.5
13.6
15.4
u (%):
Unemployment
rate2
9.9
9.3
8.5
7.5
7.6
8.4
9.3
9.8
10.6
9.8
8.4
8.7
8.5
8.3
8.0
7.3
7.6
7.4
7.2
7.1
8.6
7.4
π (%):
Inflation
rate3
1.5
0.6
0.6
1.4
1.9
1.4
1.0
1.8
1.9
1.8
2.3
1.9
2.0
2.0
3.0
2.8
3.1
3.0
3.3
1.6
0.3
0.8
France
(D-C)/
Average
(D-C 19972008) (x 10)1
16.2
11.5
10.9
4.2
6.9
12.1
14.3
9.9
10.9
8.7
7.4
6.7
6.2
3.8
3.4
7.0
3.4
2.7
4.5
7.6
14.5
9.1
10.4
u (%):
Unemployment
rate2
11.5
11.1
10.5
9.0
8.3
8.6
9.0
9.2
9.3
9.2
8.3
8.7
8.7
8.2
7.8
7.8
7.6
7.7
7.8
8.2
9.6
8.6
π (%):
Inflation
rate3
1.3
0.7
0.6
1.8
1.8
1.9
2.2
2.3
1.9
1.9
1.6
1.3
1.3
1.4
2.5
3.2
3.3
3.7
3.6
2-0
0.2
1.5
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 59
Years
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2007-Q1
2007-Q2
2007-Q3
2007-Q4
2008
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009
2009-Q1
2009-Q2
Italy
(D-C)/ Average
(D-C 1997-2008)
(x 10)1
11.3
10.8
11.8
8.1
9.7
11.1
12.7
10.0
10.0
7.3
7.2
5.5
5.8
8.6
8.8
10.0
8.9
9.7
10.1
11.4
13.9
14.0
13.8
u (%):
Unemployment
rate2
11.3
11.3
11.0
10.1
9.1
8.6
8.4
8.0
7.7
6.8
6.2
6.1
6.1
6.2
6.3
6.8
6.6
6.7
6.9
7.0
8.8
π (%): Inflation
rate3
1.9
2.0
1.7
2.6
2.3
2.6
2.8
2.3
2.2
2.2
2.0
2.0
1.9
1.7
2.6
3.5
3.3
3.8
4.0
2.9
0.8
European Union
(D-C)/ Average
(D-C 1997-2008)
(x 10)1
12.9
10.8
12.7
8.8
10.6
13.2
13.6
9.5
9.4
7.2
4.5
4.4
4.3
4.0
5.1
6.9
4.7
5.8
7.3
9.6
13.6
12.8
14.4
u (%):
Unemployment
rate2
9.8
9.4
9.1
8.6
8.4
8.8
9.0
9,0
8.9
8.2
7.1
7.4
7.2
7.1
6.9
7.0
6.8
6.8
7.0
7.4
9.4
8.1
π (%): Inflation
rate3
1.7
1.3
1.2
1.9
2.2
2.1
2.0
2.0
2.2
2.2
2.4
2.2
2.2
2.1
3.0
3.7
3.5
3.9
4.3
2.9
0.9
1.5
Note: Both numerator and denominator are given in detrended terms.
Sources: (1): Elaboration on Business Survey Data. Empirical evidence on 2009-Q2 is based on April data. (2): Eurostat data up to 2009. The 2009 annual data are
provided by the European Commission in European Economy, Economic Forecasts, May 2009. The 2009-Q2 data, if data are available at least one month in the
quarter, correspond to the latest observed. Eurostat data are integrated with information on the eurozone derived from Banca d’Italia, Bollettino Economico, n. 56,
April 2009 and information on the EU27 coming from the Bureau of Labour Statistics, Unemployment Rates in the European Union and Selected Member States 19952009. (3): Eurostat data up to 2009. The 2009 annual data are provided by the European Commission in European Economy, Economic Forecasts, May 2009. The
2009-Q2 data are based on April data provided by the European Central Bank.
60 | FIORELLA KOSTORIS
Figure 1. Indicators of demand shocks in the euro area, 1997-2009-Q2
(Quarterly data since 2007)
16,0
14,0
(D-C)/Average (D-C
1997-2008) Detrended
demand-constrained (D)
relative to capacityconstrained (C) business
regime (x 10)
u (%): Unemployment rate
12,0
10,0
8,0
6,0
4,0
π (%): Inflation rate
2,0
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
20 06
07
20 Q1
07
20 Q2
07
20 -Q3
07
20 Q4
08
20 Q1
08
20 Q2
08
20 -Q3
08
20 Q4
09
20 Q1
09
-Q
2
0,0
Years
Sources: See Table 1.
4.
Effects of the financial crisis
The origin of the present crisis in the real economy is elsewhere in the
financial sector, when it started in summer 2007 with the bursting of the
speculative bubble in the American housing market and the difficulties in
debt repayment on subprime mortgages. The securitisation of these assets,
made in complex and opaque ways, later induced a general diffusion of
partly unobservable risks, with a consequent loss of confidence in the
financial markets. Due to the globalisation of capital markets, the derived
lack of liquidity and credit crunch reached all stock exchanges, from Wall
Street to London, from Japan to Brazil. The existence of leads and lags
explains why the real economy was hit approximately a year later. And it
also explains why unemployment will keep rising even when GDP starts to
recover, although it did not deteriorate immediately after the beginning of
the cyclical downturn. Indeed this phenomenon is already being tested in
some countries, like France and Germany, where the recession would seem
to be at an end by the second quarter of 2009 and yet labour market
performances are still worsening, even though they were improving up to
the second semester of 2008 when a fall in output was starting to emerge.
In developed countries, the aggregate demand contraction observed
since mid-2008 stems from a decrease in the incomes of firms and
households, from a decline in confidence and from a credit crunch, with a
consequent contraction in funding for the purchase of durables and nondurables and a delay in investment decisions. The fact that this happens at
the same time in Europe and in the United States – which constitute major
consumer markets for each other – means that foreign demand is also
adversely affected. On the other hand, the fall in world trade leads to a
cyclical worsening in BRIC and other developing countries, while OPEC is
also suffering from the extreme volatility in oil prices. Everywhere, the
recession in the real economy is caused by a systemic, strongly negative
demand shock.
Focusing more on Europe, the recession began in the second quarter
of 2008 in Germany and Italy, but later in other major countries like Spain,
the United Kingdom and France. Indeed, on average, the euro and the EU
economic systems started to observe a recession only in the third quarter of
last year and the severity of the slowdown appeared particularly worrying
after 15 September 2008. Not only was 2007 still a boom period for the
whole Union, but even the GDP growth in 2008 remained positive in the
| 61
62 | FIORELLA KOSTORIS
vast majority of member states (the notable exceptions being Italy and
Ireland), in spite of the fact that all European countries have experienced a
recession since the second semester of last year. In some cases, the 2008
GDP dynamics seem remarkable (1.3% in Germany – slightly bigger than in
the US, 0.7% in France, 0.8% and 0.9%, in the eurozone and in the EU).
Forecasts for 2009, however, are worrying, despite clearly improving
performances in large European countries since the second quarter of this
year: estimates for 2009 growth are -3% in France, -4.4% in Italy, -5.4% in
Germany, -4% both in the euro area and in the Union, also due to the very
poor prospects of the Spanish and British economies. On the contrary,
expectations for 2010 are generally positive. Looking ahead, it is to be
hoped that the recession in the Union will only last 12-18 months, implying
a much smaller cumulative GDP decrease than during the Great
Depression, of a size similar to that measured during the first oil shock of
1973-74, the latter being, however, of a totally different nature (an
asymmetric, strongly negative supply shock).
The 2008 average inflation rate was still growing (3.3% in the
eurozone, 3.7% in the European Union). But the overall picture has
deteriorated dramatically since the last quarter of 2008 and more so in 2009.
The most recent data for the eurozone indicate a negative inflation rate in
the three months since June 2009.
5.
Conclusions
We should ask ourselves whether economic policy coordination in Europe
is indeed apt to fight the recession that started in mid-2008. We know that,
when faced with a strong and systemic negative demand shock, macro
policies in the Union should be expansionary and decided upon and
managed jointly in order to obtain the most effective results. While
monetary policy is well-suited to these needs, fiscal policy in Europe is not,
for reasons already outlined in the discussion about the Stability and
Growth Pact, which is the only instrument available for budgetary
coordination. Due to the Pact being ill-conceived, there is an explicit
limitation on proper fiscal expansion: according to the Pact’s rules, for
example, but contrary to any economic rationale, on 18 February 2009, six
EU countries (France, Spain, Greece, Ireland, as well as Malta and Latvia)
were affected by an excessive deficit procedure due to their negative
balance in 2008. The same procedure will presumably concern 13 out of 16
euro countries next year and it is difficult to understand how they will be
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 63
able to avoid useless, indeed harmful sanctions foreseen by the Pact, unless
the latter is quickly reformed – be it in a formal or informal way.
Unfortunately, for the time being, this would seem to be difficult, as France
and Germany do not agree on the direction to be taken: the former wants to
spend more in order to oppose the current cyclical downturn, while the
latter is sticking to the old rules, as it fears the inflation-boosting effects of
deficits. Germany, moreover, is generally afraid of having to ‘foot the bill’,
which is why Berlin is against many other innovative proposals, including
the supply of Eurobonds.
A quick and successful exit from recession also requires some
changes to financial markets: their performance is still less satisfactory than
before the summer of 2007 and continues to suffer from excessive volatility.
No doubt, public guarantees on bank debt and recapitalisation operations
concerning financial and sometimes non-financial companies (as in the
automobile sector) have played a positive role. Presumably the housing
bubble is almost over and the subprime mortgage crisis is all but over, but
the diffusion of toxic assets through risky securitisations is still considered
as very dangerous; financial companies are supposedly not yet totally clean
and full trust in transactions is still lacking. To restore ‘initial conditions’,
two further public interventions would appear to be necessary:
•
Bad assets should be completely eradicated from financial companies,
particularly large multinationals. Up to now, governments have tried
to set a conventional price for toxic assets that have no market. The
problem is that if this price is too low, companies do not sell them,
but if it is too high, tax-payers do not pay for them. Maybe it is
necessary to use public money to buy the entire financial companies
under critical conditions, whose market price is revealed on the stock
exchange, and later separate the good from the bad, selling back the
latter once finally cleaned up. It is not known, however, whether
markets and agents would like these temporary forms of
nationalisation, even though at least in the European Union they
were explicitly agreed on 12 October 2008.
•
The capital markets being globalised, the best corrective and
preventive solutions to the problems of the financial sector should be
decided at supranational level. European coordination would then be
necessary, but probably not sufficient. The quality and extension of
the supervision of financial markets should improve. Markets should
become more transparent, all financial operators should be subject to
64 | FIORELLA KOSTORIS
controls (beyond national borders if companies are multinationals),
conflicts of interest should be eliminated, particularly in rating
societies and the existing rules should be strictly implemented. Some
steps forward are currently being taken both in the European Union
and the United States in an uncorrelated, though possibly nondivergent way (Hamaui, 2009). Yet, fundamental changes on this side
of the Atlantic appear to be difficult. This is because big European
partners have always had different opinions on the optimal
governance for microeconomic and macroeconomic prudential
supervision: Paris feels that bank monitoring should be part of
monetary policy (thus implicitly tending to assign such tasks to the
ECB), while Berlin thinks it should be better managed by an
institution having no control over monetary policy and reference
rates. London considers that monitoring should be simultaneously
extended to all financial intermediaries and insurance companies. As
a consequence, the European Council Conclusions of June 2009,
rather than imposing some Union coordination on financial
supervision, only pay lip service to “the need to improve the
regulation and supervision of financial institutions both in Europe
and globally”, de facto exclusively supporting the creation of a
European Systemic Risk Board (previously envisaged by the
Commission Communication of 27 May 2009). This new instrument
should monitor any threat to financial stability caused by macro
phenomena and risks of contagion, thereby providing a first partial
answer to macro, but certainly not to micro, prudential supervision
coordination problems.
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 65
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ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 67
Annex
Using an extremely simple model, itself an extension of a previous one
(Kostoris, 2006), the rationale of the Stability and Growth Pact is shown, but
also its main analytical weaknesses (which cumulate with those concerning
its governance and its system of sanctions and incentives).
All variables are defined in terms of percentage deviations from their
long-run values, except for the nominal interest rate, i, and are described by
capital letters. All other small letters are parameters, assumed positive. The
output differential of country a, Ya, is assumed to depend only on the
deficit gap of that country, Defa, on the expected real interest rate, (i - Πea)
with Πea equalling the expected inflation rate in country a and on a demand
shock, Ea. The inflation rate, Πa, is an increasing function of the output
differential and of a supply shock, Ua.
First consider in isolation the equilibrium of country a. Aggregate
demand is
Ya = ca Defa – va (i - Πea) + Ea .
(1)
The relation between the deficit and the structural deficit (Defsa)
depends on the economic cycle in two ways: the deficit increases when
there exists an output gap in country a (Ya<0) and, if negative shocks are
common to other countries, when a similar shock arises elsewhere (the E
shock concerning other countries has the same sign as Ea, unless there is an
asymmetric shock, whereby EaE=0). This is indicated by
Defa = Defsa - maYa + da (EaE) ,
(2)
where maYa shows the automatic stabilisers and da(EaE) indicate the
externalities created by a common (or systemic) demand shock. The latter
element is usually ignored, as it is usually supposed that shock Ea is
asymmetric.
Thus, the equilibrium output of country a is
Ya = fa Defsa – ka (i - Πea) + haEa + qa (Ea E) ,
(3)
where
fa = ca/(1 + ca ma) ; ka = va/(1 + ca ma) ; ha = 1/(1 + ca ma); qa = ca da /
(1+ca ma)= da fa; (ha + qaE)>0.
Aggregate supply of country a is
Πa = n Ya + Ua
.
(4)
68 | FIORELLA KOSTORIS
The nominal interest rate is supposed to be determined by the central
bank so as to ensure expected price stability in the medium run, i.e. in the
absence of shocks. Hence, Πea = 0 and i = faDefsa/ka. This implies that in the
medium run monetary policy is able to offset any effect of fiscal policy on
output and prices via an appropriate level of the interest rate.
Let us assume that the government of country a fully internalises the
reaction function of the central bank and the increase of i due to deficit
spending. Let us also suppose that the government cares both about output
stabilisation and about the fiscal rule, concerning Defsa (hence also Defa), as
it wants to minimise the following quadratic loss function La:
La = ½ [Defs2a + la Y2a] ,
(5)
where la captures the relative preference for output stabilisation
relative to the fiscal rule.
Optimisation leads country a to the following decisions:
Defsa = 0 , Defa = - ma ha Ea + daha (EaE),
(6)
with
Ya = haEa + qa (EaE); Πa = n [ha Ea + qa (EaE)] + Ua
(7)
The optimum solution is a structural balanced budget, combined
with a deficit spending in the short term, utilising automatic stabilisers to
counterbalance any possible negative asymmetric demand shock (Ea< 0, EaE
= 0). Under these circumstances, the output gap becomes negative and
inflation declines. The latter condition arises also with a positive supply
shock (Ua< 0). Notice that, when the asymmetric demand shock Ea is
negative, the deficit gap has to be positive and any numerical constraint on
the deficit spending under the level - ma ha Ea is not a first best: indeed, if
there exists a strongly negative asymmetric demand shock, there may arise
a logical inconsistency between Defsa = 0 and Defa < 3% of GDP. On the
other hand, no logical inconsistency arises if the asymmetric negative
demand shock is smaller, so that -ma ha E a < 3% of GDP, or if there is a
supply shock, given that in this event no deficit should be optimally
chosen. Finally, if the negative demand shock hitting country a is common
to other countries, a logical inconsistency may emerge with Defa < 3% of
GDP, even if the shock Ea by itself is not so strong: this is because the
common shock determines a non-linear effect.
Let us now suppose that two countries, a and b, have a single
currency and a common nominal and expected real interest rate (i - Πe);
while they take into account the feedback rule followed by the central bank
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 69
in setting the nominal interest rate, they do not coordinate their fiscal
policies, playing a Nash non-cooperative game.
Their aggregate demand and supply are functionally similar, but
their parameters differ (i.e. fa ≠ fb; ka ≠ kb; ha ≠ hb; da ≠ db; however, n is
common to both countries in order to simplify calculations). The monetary
policy is now determined in a slightly more complicated way, so as to
make the average expected inflation rate equal to zero, in the absence of
shocks, i.e.
(αYea + β Yeb) = 0 ,
(8)
where the superscripts e indicate the expected values, α and β
identify the weights of country a and b respectively, with α + β = 1 and
both positive. Hence the central bank sets
i = (αfa Defsa + βfb Defsb) / (αka + βkb)
(9)
Countries a and b, taking into account the central bank reaction
function (9), minimise their loss function La, as in (5), and similarly Lb, as
follows:
Defsa = Defsb A – Ea (ha + qa E) C
,
(10)
Defsb = Defsa B – Eb (hb + qb E) D
(11)
where
β2fa kbfb ka la
faβkb (αka + βkb) la
A = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ; C = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ;
(αka + βkb)2 + la(fa βkb)2
(αka + βkb)2 + la(fa βkb)2
fb αka (αka + βkb) lb
α2fa kbfb ka lb
B = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ; D = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
(αka + βkb)2 + lb(fb αka)2
(αka + βkb)2 + lb(fb αka)2
- EbAD (hb + qbE) – EaC (ha + qaE)
Hence Defsa = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
(12)
1 - AB
with 0<AB<1
and similarly, Defsb is calculated. They both depend on demand
shocks of countries a and b and on common shocks (if the latter arise).
70 | FIORELLA KOSTORIS
Equations (10), (11) and (12) show why there are negative spillovers
created by the existence of a single monetary policy, without any
coordination between fiscal policies. Each country attaches only limited
importance to the impact of its deficit on the interest rate, effectively free
riding in its fiscal decisions. On the other hand, each country reacts to the
deficit change of the other country, leading to an excessive structural
deficit. This bias is, however, lower if there is a systemic shock, as this
provides a positive externality. In fact, the structural deficit spending of
other governments does not only induce negative spillovers, but possibly
also positive ones.
Each country’s structural deficit is not set to zero any longer and this
is due to a coordination failure. To show why this is indeed the case, it is
sufficient to see that, if the quadratic loss function (L) where calculated on
the basis of a common target, consisting of minimising the joint preference
for a fiscal rule and for output stabilisation, as in
L = ½ [(α Defsa + β Defsb)2 + l (α Ya + β Yb)2] ,
(13)
with l equal to the average of la and lb, the optimal solution of (13),
given (8), would be Defsa = 0 = Defsb.
Consequently, (6) and (7) would hold true for country a and similarly
it could be calculated for country b. This consideration is supposed to
provide the rationale for setting the limits on deficit spending in the
eurozone through the Stability and Growth Pact. Indeed, according to
Uhlig (2003):
Ideally fiscal policy should respond to the country-specific ‘fiscal
demand shocks’, leaving it to the European Central Bank to
respond to the average of the country-specific cost-push shocks.
However, each fiscal authority will be tempted to try to improve
the situation for its own country by, for example, expanding
government demand or government deficits precisely when the
ECB needs to combat cost-push shocks via higher interest rates.
With all countries doing so, the ECB ends up combating not only
the cost-push shocks, but the additional fiscal demands as well.
Institutions need to be found that will ensure that country-specific
fiscal policies stick to the task at hand and avoid this free-riding
issue. The Stability and Growth Pact can be seen as doing exactly
that: by limiting country-specific deficits, the temptation in each
country to seek an improvement in its situation at the expense of
all other members of EMU will be limited.
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 71
However, further elements emerging in (10), (11) and (12), which are
ignored in the Stability and Growth Pact, should be taken into
consideration: a distinction in the binding constraints on the fiscal
behaviour of member states belonging to the single currency should be
made, depending on whether there exists a negative supply or a negative
demand shock, whether it is strong or mild and asymmetric or systemic.
First, in the optimal solution, the ceiling on deficit spending should be
different in the case of a supply and of a demand shock. The 3% constraint
may be too large, facing a negative supply shock, i.e. when essentially no
deficit spending should be allowed, according to equation (6). It may be
correct, when facing a mild asymmetric negative demand shock – when the
automatic stabilisers restore output at the potential level within the limits
of the 3%; it may finally be sub-optimal when there is a strong and/or a
systemic negative demand shock (hence automatic stabilisers are not
sufficient and a discretionary expansionary fiscal policy is called for). The
coordination failure is particularly absurd when there is a systemic
negative demand shock, because each country is positively affected by the
budgetary stimulus of other countries.
5. MARKET INTEGRATION AND
COMPETITION POLICY:
THE CHALLENGES AHEAD
GINEVRA BRUZZONE & LUIGI PROSPERETTI
1.
Introduction
While several objectives have been assigned to Community institutions
since the very beginning and new targets and tasks have been added over
time, the establishment of a single market in which competition is not
distorted is still the core of the European project. It has been and remains
an extraordinary experiment of integration that is respectful of national
diversities.
There are good reasons to keep a central role for market integration in
the EU of the 21st century. Indeed, the European project cannot dismiss its
freedom-oriented compass without losing much of its identity. The
incentives for European undertakings to increase efficiency in order to meet
world competition would become muted and the prospects of economic
growth would dim.
The accomplishment of the single market requires both negative and
positive integration, i.e. the elimination of obstacles to the free movement
of goods, services and factors of production and the adoption of common
policies to ensure the proper operation of market forces.
The objective has not been fully attained yet. The ratio of intra-US
states exports to GDP is around 70% higher than the ratio of intra-EU15
exports to GDP. For services, which account for some 70% of GDP and
employment in advanced countries, markets are still organised along
national lines and cross-border trade remains relatively underdeveloped.
72 |
MARKET INTEGRATION AND COMPETITION POLICY | 73
Only 22% of public procurement in the EU is published for tender and
therefore open to competition.1 The establishment of a Community patent
is still blocked by apparently insurmountable linguistic obstacles, although
it is widely acknowledged that it would substantially reduce the costs for
protection of intellectual property rights in Europe. The transposition of
directives is slow and of low quality. The implementation of Community
rules, contrary to what would be expected in a truly integrated area, leads
in some cases to highly divergent results.
It may be argued that the attainment of a single market where
competition is not distorted is a moving target, which will never be reached
definitively. It is necessary not only to remove barriers that still hamper the
fundamental freedoms, but also to ensure that new barriers are not created,
that competition rules continue to be applied so as to avoid distortions
resulting from the conduct of companies or from state measures. Common
policies have to be adapted to changing market conditions and
technologies. And yet there is room for improving the current situation
with new distortions arising from national interventions to cushion the
impact of the economic slump.
As to the political economy of regulation, it has long been recognised
that removing barriers to open markets must confront a fundamental
difficulty: the costs of greater market freedom inevitably fall on
incumbents, who will therefore resist liberalisations, whereas those likely
to benefit from them are usually less aware of the attendant advantages
and therefore will not make their voice heard.2
Over time, there have been several waves of low popularity of
economic integration in the EU internal market, owing either to legitimate
concerns regarding the protection of social values and cohesion, or to the
lack of visible benefits, or, naturally, to the impact of market opening on
vested interests. When the economy is down, the problem worsens, as
many recent examples confirm once again.
In autumn 2008, the outburst of the economic and financial crisis was
followed by widespread calls for a suspension of the application of EU
state aid policy so as to allow member states more room for manoeuvre in
1
See Ilzkovitz et al. (2007).
2
On these issues, see Amato & Laudati (2001).
74 | BRUZZONE & PROSPERETTI
managing the crisis. In the main the European Council managed to resist.
However, the member states have taken quite a few measures designed to
protect domestic industry and employment; in a number of cases they have
notified the Commission aid measures which clearly discriminate in favour
of national companies and therefore required adjustment before being
considered compatible with the common market.
A paramount example was provided by the process which led, in
2006, to the adoption of the Directive on services in the internal market.3 In
the context of the enlargement of the European Union, the initial proposal
by the European Commission, aimed at removing residual obstacles to the
fundamental freedoms in the services sector, was perceived as threatening
social dumping within Europe and therefore met strong opposition by
trade unions in several member states. Prolonged negotiations led by the
European Parliament eventually succeeded in reaching an acceptable
compromise, but numerous amendments weakening the original text were
required before the Directive could become politically acceptable.4
More generally, in recent years the demand for protectionism
mounted in several member states.5 In this perspective, it has been widely
debated whether some of the changes introduced by the Lisbon Treaty
imply a weakening of competition policies.
As is well known, following strong pressure by the French
government, undistorted competition is no longer included among the
objectives of the EU, although it has maintained its place among the
instruments necessary to achieve integrated markets. Article 3 of the new
Treaty on European Union states that the Union shall establish an internal
market and shall work “for the sustainable development of Europe based
on balanced economic growth and price stability, a highly competitive
social market economy, aiming at full employment and social progress, and
a high level of protection and improvement of the quality of the
environment”; the promotion of scientific and technical progress is also
mentioned, but the protection of competition is not. In order to find the
statement whereby the internal market as set out in Article 3 of the EU
3
Directive 2006/123/EC on services in the internal market.
4
See Micossi (2006).
5
See contribution by Bastasin, in this volume.
MARKET INTEGRATION AND COMPETITION POLICY | 75
Treaty includes a system ensuring that competition is not distorted, one has
now to turn to a recital of Protocol 27.6
One argument playing down the anti-competitive signal implicit in
the removal of undistorted competition from the Treaty goals maintains
that the protection of undistorted competition never was an end in itself
(but is the promotion of technical progress an end in itself?). Furthermore,
all the substantive rules on competition and the internal market contained
in the EC Treaty have survived in the Treaty on the Functioning of the
Union,7 which in addition requires that the economic policy of the Union
and the member states be based on the principle of an open market
economy with free competition, and explicitly acknowledges that this
principle favours an efficient allocation of resources.8
Importantly, Article 86 of the EC Treaty remained untouched:
therefore, services of general economic interest remain subject to the rules
on competition “in so far as the application of such rules does not obstruct
the performance in law or in fact of the particular tasks assigned to them”,
although in its application the Courts will also have to take into account a
new Protocol 26 on services of general interest, which emphasises the
importance of services of general interest in the interpretation of the rules
of the Treaty.9
In Protocol 27 the High Contracting Parties specify that, to this end, the Union
shall if necessary take action under the provisions of the Treaties, including Article
352 of the Treaty on the Functioning of the EU. Under that article, the Council,
acting unanimously on a proposal from the Commission and after obtaining the
consent of the European Parliament, shall adopt the appropriate measures.
6
It remains to be seen whether, without an express mention of the target of
undistorted competition in the EU Treaty, Community courts will still be willing to
adopt an extensive interpretation of the illegality, under EU law, of restrictions of
competition resulting from state measures. In the past, several important
judgments in which the Court of Justice upheld the alleged illegality of anticompetitive measures adopted by member states referred to Articles 3.1.g and 10 of
the EC Treaty as a legal basis. See, for instance, Court of Justice, judgment of 9
September 2003, case C-198/01, Consorzio industrie Fiammiferi (CIF).
7
Articles 119 and 120 of the Treaty on the functioning of the EU (formerly Articles
4 and 98 of the EC Treaty).
8
9 Interestingly, Article 16 of the EC Treaty, introduced by the Amsterdam/Nice
Treaty, and now transposed in Article 14 of the Treaty on the Functioning of the
76 | BRUZZONE & PROSPERETTI
A pro-competitive single market agenda requires an active marketing
effort vis-à-vis citizens and stakeholders so as to make the resulting
benefits visible and understood by the public. There is also a need for
effective measures supporting those who find it more difficult to cope with
the consequences of integration. These measures will have to give
particular attention to creating the conditions for enhanced flexibility of
economic structures and factor markets, including appropriate support for
human capital investment and employability.
In this paper we focus on four main challenges that must be met by
European market integration policies in the coming decade: i) becoming
closer to citizens; ii) keeping stable principles while avoiding unjustified
rigidities that can feed opposition to pro-competitive policies, and
improving the integration of structural policies in Europe; iii) reaching the
right level of harmonisation of common rules; and iv) improving the
institutional arrangements for their implementation.
2.
Becoming closer to citizens
In principle, the protection of competition and the completion of the
internal market are viewed favourably by European citizens. However,
there are differences between member states. For instance, the responses
provided by citizens of the larger countries to the assertion “Free
competition is the best guarantee of economic prosperity” (Table 1) show
heterogeneous social welfare functions, and these are quite stable, being
only weakly affected by the financial crisis.
Moreover, in responses to the question “Which aspects should be
emphasised by the European institutions in the coming years, to strengthen
the European Union in the future?”, the European internal market ranks
tenth, after economic affairs, social and health issues, immigration, the fight
against crime, environment, energy, solidarity with poorer regions, the
fight against climate change and education (Figure 1).
EU, was weaker since, while requiring the Union and the member states to take
care that services of general economic interest operate on the basis of principles
and conditions that enable them to fulfil their missions, it expressly recalled the
Treaty competition provisions.
MARKET INTEGRATION AND COMPETITION POLICY | 77
Table 1. Responses to the (2009) Eurobarometer assertion “Free competition is the
best guarantee of economic prosperity” (%)
EU-15
Germany
France
United Kingdom
Spain
Italy
I agree
63
75
48
63
57
69
I do not agree
26
21
40
22
27
23
I do not know
11
4
12
15
16
8
Source: Eurobarometer, September 2009.
Figure 1. Responses to the question: “What aspects should be emphasised by the
European institutions in the coming years, to strengthen the European
Union in the future?” (%)
Source: Eurobarometer, September 2009.
78 | BRUZZONE & PROSPERETTI
Looking at the very different policy areas, this ranking is no surprise
and clearly reflects the increasing demand for security by European
citizens. However, it also shows that proactive measures are needed to
create a sense of ownership by European citizens as far as the policies for
the market are concerned.
There are several ways in which Community institutions can try to
make such policies closer to stakeholders and, more generally, to citizens.
They include, for instance, better regulation initiatives aimed at improving
the quality of Community legislation, including extensive use of public
consultation and ex-ante and ex-post impact assessment.
It is also useful to try to quantify the costs of non-integration and
restrictions of competition so as to increase awareness of the potential
benefits of pro-competitive policies. Since publication of the authoritative
Cecchini report on the ‘costs of non-Europe’ in 1988, increasingly
sophisticated empirical studies have been undertaken for this purpose by
the Commission and private researchers. For instance, when the discussion
on the services Directive was raging, economic analysis usefully pointed
out that the productivity gap between the EU and the US is largely
explained precisely by the obstacles to the establishment of a single market
for services.10 In preparation of the recent Single Market Review, it has been
stressed that, as a result of the progress made over the period 1992-2006 in
achieving an enlarged internal market of 25 member states (including
liberalisation of network industries), “GDP and employment levels have
increased significantly. The estimated gains from the internal market
amount to 2.2% of EU value added and 1.4% of total employment (or 2.75
million jobs). Moreover, these gains could be doubled with the removal of
most of the remaining internal market barriers.”11
Other empirical studies have purported to assess the effects of
competition policy in promoting productivity growth, again with evidence
of positive effects.12
As to the enforcement of competition policies, in the last decade the
Commission has strived to ‘modernise’ the system, with the ultimate aim of
10
Micossi (2006); van Ark et al. (2008, p.38).
11
See Ilzkovitz et al. (2007).
12
See Buccirossi (2009).
MARKET INTEGRATION AND COMPETITION POLICY | 79
increasing the awareness that enforcing competition rules is not a matter
reserved to antitrust experts, but produces important economic benefits
ultimately accruing to European consumers. Both in antitrust and the
control of state aid, several notification requirements have been eliminated.
In antitrust, the Commission placed an increasing emphasis on clear
priority-setting by public enforcers, so as to focus on the infringements
more likely to harm consumers, notably cartels.
Under the new approach, the Commission is also making intensive
use of fact-finding sectoral investigations in sectors that are crucial to
European consumers, such as retail banking, gas, electricity and the
pharmaceutical industry. Recent conferences promoted by the Directorate
General for Competition address issues that, only ten years ago, would
have appeared odd, such as “How has competition policy benefited
European consumers?” or “How can we deliver continuous improvement
in consumer relations?”13 Community institutions have also undertaken to
make the control of state aid more intelligible to laymen. Procedures have
been made more transparent and the Commission has started to explain its
strategy concerning state aid in plain language, unprecedented in this area.
Notably, it has tried to convey the message that EU member states should
tend towards a system with “less and better targeted state aid” and that
state aid measures can be justified only when they aim to remove clear
market failures. It has also begun promoting private actions for damages
arising from state aid.14
Although it remains unlikely that policy areas such as antitrust and
the control of state aid will ever become truly popular among European
citizens, the efforts to make pro-market policies perceived by citizens as
less distant from their private interests are indispensable, in order to avoid
that the single market and competition policies continue to be viewed as
matters for Eurocrats.
See the programme of the Conference on Competition and Consumers in the 21st
Century,
21
October
2009,
on
DG
Comp’s
website
(http://ec.europa.eu/competition/consumers/events/2009/index.html).
13
See the study conducted for the European Commission on these questions by
Jestaedt et al. (2006).
14
80 | BRUZZONE & PROSPERETTI
3.
Stable principles and integration of structural policies
As anticipated, with the outburst of the economic and financial crisis,
European control of state aid risked being set apart, and this scenario
would certainly have had permanent consequences. The challenge for the
Commission was to keep the basic principles unchallenged, while showing
sufficient flexibility to meet the demands for state aid that were justified by
the need to address a crisis of unprecedented gravity. The Commission was
sufficiently capable of meeting the challenge. It founded its criteria for the
assessment of state aid during the crisis on a special legal basis, namely
Article 87.3.b of the Treaty, which allows the Commission to consider
compatible with the Common market state aid measures needed to
“remedy a serious disturbance in the economy of a Member State”. In so
doing, it was able to rely on more flexible assessment, without prejudice to
the normal criteria that will continue to be applied to state aid when the
system will return to normality. The Commission, although proceeding
amongst harsh criticisms and, somehow, also by trial and error due to the
novelty and complexity of the economic environment,15 succeeded in
avoiding wrecking the system. Member states have always notified aid
plans, the Commission has swiftly examined and generally approved them,
in some cases requiring some changes and the removal of clearly
protectionist measures. Not only has the system of state aid control held
out, it has also helped governments to discriminate on the merits between
requests of aid during the economic turmoil. Unexpectedly, although
several problems remain unresolved, the European regime has come to be
viewed as a best practice internationally.
A call for flexibility in the enforcement of pro-competitive policies
also emerges from the requests for a better exploitation of the synergies
between different European structural policy instruments.16 It can be
Some changes are evident, for instance, in the position taken in the December
2008 Communication on the recapitalisation of banks, compared with the October
2008 Communication on State aid in the banking sector.
15
For instance, Ilkowitz et al. (2007) argue that “internal market policies contribute
towards creating the appropriate framework conditions for European firms to be
competitive at world level. Other policies, including in particular competition
(state aids, merger control and antitrust) and innovation (R&D, education, ICT)
policies, have similar objectives. Potential gains from integrating these different
policy instruments within a systemic approach are substantial.”
16
MARKET INTEGRATION AND COMPETITION POLICY | 81
argued that the quest for integration of policies entails the risk that
industrial policy objectives will systematically prevail over the objective of
maintaining an open market economy based on undistorted competition.
But it is not necessarily so: a more integrated approach to structural policies
can also be undertaken without weakening the fundamental principles of
each policy area.
For instance, the need to reconcile competition policy with the
promotion of efficiency and competitiveness does not necessarily require
external constraints, but only the application of proper competition
principles. In modern competition policy, it is clear that the goal is not the
maintenance of a fragmented market structure, but the protection of the
competitive pressures that are essential to the operation of the market
process. Efficiency is seen as a value, not a risk for competition.
Competition rules are not, in themselves, an impediment to the growth of
European companies, even through mergers and acquisitions.
Acknowledgement that cooperation among competitors may, under certain
conditions, produce positive results, for instance in standard-setting, is also
fully compatible with a modern approach to the application of antitrust
rules.
On the other hand, when requests of weak enforcement of market
principles are justified on the basis of social concerns, giving up the
objective of a single market with undistorted competition does not seem
the right response, because of the negative impact it would have on growth
prospects. A much better strategy is to support further progress in market
integration, including the removal of still high barriers to the mobility of
labour, with a renewed social agenda and better functioning welfare
regimes.17
4.
The proper degree of harmonisation
4.1
Supranational regulation
From the very beginning, the search for the proper degree of harmonisation
in the definition of rules for the internal market has been a matter for
discussion. In order to assess these issues, it may be useful first to address
On these issues, see the two contributions elsewhere in this volume by C.
Bastasin and M. Ferrera & S. Sacchi.
17
82 | BRUZZONE & PROSPERETTI
the more general question of regulatory models in a multinational context
such as that of the European Union. Considering our goals here, we will
refer to the very broad definition of regulation set forth by Stigler in 1981,
whereby regulation is any “attempt on the part of government to use its
authority to influence the economic behaviour of non-government
agents”.18
There are three main economic reasons for supranational regulation:
i) the need to remove barriers among states that reduce trade flows and
therefore welfare, ii) the presence of domestic market failure spillover
effects towards other countries and iii) the greater effectiveness of
supranational, as opposed to domestic, regulation stemming from
regulatory economies of scale.
The first of these reasons underpins the whole Treaty. Article 5
perfectly captures the other two, in stating:
in areas which do not fall within its executive competence, the
Community shall take action, in accordance with the principle of
subsidiarity, only if and in so far as the objectives of the proposed
action cannot be sufficiently achieved by the member states and
can therefore, by reason of the scale or effects of the proposed
action, be better achieved by the Community.
As pointed out by Pelkmans (1998),19 regulatory effects of scale and
cross-country effects are therefore two necessary preconditions for
Community regulation.
Where these conditions are
therefore be efficient, assuming one
complexity of the general backdrop:
indeed take on varying degrees of
concerned, just as perceptions of
communities may vary widely.
met, supranational regulation can
does not underestimate the extreme
market failure-derived problems can
severity depending on the country
said severity by different national
As for the instruments of supranational regulation, they can be
analysed as coming under two main categories: ex-ante regulation and expost regulation. Ex ante regulation is generally based on Articles 94 and 95 (1)
of the Treaty, traditionally used to remove obstacles to the exercise of
18
Stigler (1981).
19
Pelkmans (1998).
MARKET INTEGRATION AND COMPETITION POLICY | 83
fundamental freedoms, as well as to eliminate significant competitive
distortions. According to Barnard’s taxonomy (2004),20 this type of
regulation can take on different forms:
•
Full harmonisation uses regulation to set mandatory standards, the
adoption of which prohibits member states from introducing
different standards, including more stringent ones. Typically, these
are ‘slow’ harmonisation measures, with member states attempting to
negotiate instruments to defend their own firms, as the harmonising
regulation may be good or bad for them.
•
Minimal harmonisation sets minimum standards and leaves member
states free to adopt more stringent ones.
•
Optional harmonisation sets standards that producers in any given
country may adopt for sales in their domestic markets, but which they
must adopt for sales in other countries.
Article 94 empowers the Council to issue directives “for the
approximation of regulations which directly affect the establishment or
functioning of the internal market”; it requires unanimity and produces full
harmonisation. It proved cumbersome and ineffectual, and was eventually
superseded by the Single Act (in force since 1987) with Article 95, a far
more flexible instrument.
Article 95 empowers the Council, acting by qualified majority voting,
to adopt measures for the approximation of regulations of member states
“which have as their object the establishment of the internal market”. It was
underpinned by the famous 1979 Cassis de Dijon decision by the Court of
Justice,21 which had strengthened the presumption in favour of freedom of
circulation of goods, services, capital and people, under the principle of
mutual recognition of national legislations and had subjected the
introduction of restrictions to the strict tests of imperative need, adequacy
and proportionality of the restrictive measures. From that moment onward,
the Commission could concentrate its attention in harmonising legislation
on the measures that were required to eliminate restrictions that could be
justified under the Cassis de Dijon test.
20
Barnard (2004).
21
Case 120/78 Rewe Zentrale v. Bundesmonopolverwaltung fur Branntwein (1979).
84 | BRUZZONE & PROSPERETTI
Article 95 achieved a delicate balance between the requirements of
freedom and the protection of legitimate national interests of protection of
consumers, workers and the environment; it was revised by the Treaty of
Amsterdam in order to strengthen these protections. Thus, the
Commission, in its proposals to the Council concerning health, safety,
environmental protection and consumer protection, must take as a base a
high level of protection. After the adoption of a harmonisation measure, a
member state can maintain national provisions for major reasons
pertaining to public policy objectives recognised by Community law,22 but
has to notify the Commission and the other member states, setting in
motion a review procedure that can approve or reject the measure. New
measures can also be introduced by member states in harmonised areas,
but only on the basis of new scientific evidence relating to the protection of
the environment or the working environment. All Community measures
are subject to safeguard clauses that make it possible to reassess their
adequacy in the face of evidence of insufficient protection.
The Court of Justice made it clear that Article 95 can be used to
eliminate likely obstacles to the exercise of the fundamental freedoms as
well as appreciable distortions of competition in the internal market.23
Recourse to these instruments has evolved over time.
4.2
Common rules for products
Initially, full harmonisation measures under Article 94 were used
extensively to standardise all products from a technical standpoint, and
their application would be sought whenever a country barred the goods of
another from access to its domestic market, with obvious costs in terms of
competition and innovation.
As was mentioned, the Court of Justice’s Cassis de Dijon ruling
represented a turning point. It clearly stated that full harmonisation was
normally unnecessary, and that different countries could legitimately opt
for different forms of regulation, provided that regulatory restrictions
complied with necessity and proportionality criteria for the pursuit of
Article 95 refers to the objectives mentioned in Article 30 of the EC Treaty, as
well as to the protection of the environment and of the working environment.
22
23
Case C- 376/98, Tobacco Advertising (1998).
MARKET INTEGRATION AND COMPETITION POLICY | 85
regulatory goals recognised by Community law.24 The ruling thus
sanctioned a principle of mutual recognition for regulatory regimes, subject
however to green-lighting on the part of the country receiving goods
regulated in their country of origin. The principle obviously allows for
regulatory competition, insofar as national regulations that do not meet the
criteria of necessity and proportionality are made to compete against those
applied in other countries.25
As of the 1980s, the focus of full harmonisation measures was thus
gradually restricted to product security purposes, and flexible
harmonisation based on essential requirements of protection became the
rule. This evolution was favoured by the so-called ‘New Approach’ to
internal market legislation developed by the Commission after the entry
into force of the Single Act. The New Approach was aimed at limiting the
scope of harmonising directives to the task of defining the essential
requirement of protection, while leaving the determination of technical
details to voluntary standards, prepared under Community procedures by
official standardisation bodies and published in the Official Journal, the
adoption of which gives rise to a compliance presumption.
Therefore, as far as the features of products are concerned, there has
been a clear trend away from full harmonisation in favour of increased
flexibility.
In the case in point, Germany was ruled against for having imposed, absent
adequate justification, limitations to the sale of goods that had received all the
required authorisations in their country of origin.
24
This principle is however far from implying a home-country rule, insofar as the
verification of the equivalence of the levels of protection is performed by the host
country, and not by the country of origin. A country-of-origin rule would
conversely assume that compliance checks have been performed once and for all
by the product’s country of origin. This distinction assumed great relevance in
discussions on the Services Directive, as the Commission initally tried to push
through a country-of-origin principle, while the solution ultimately adopted was
that of mutual recognition under the control of the country receiving the service.
There are currently no examples of country-of-origin rule application within the
Community except for cases of full ex ante harmonisation of substantive rules.
25
86 | BRUZZONE & PROSPERETTI
4.3
Commercial relations between business and consumers
It would be misleading, however, to view the evolution of Community
regulation as a one-way trend towards flexibility of regulatory choices at
the national level. The most prominent counter-example is in the area of
consumer protection and pertains to commercial practices aimed at
reaching consumers in the different member states. In this area, the absence
of common rules, including the minimum harmonisation approach
followed by the 1984 Directive that set common rules on misleading
advertising, led to significant divergences in member states which
increased the cost to business of exercising internal market freedoms and
made consumers uncertain of their rights. Therefore, Community
institutions decided to shift to a maximum harmonisation approach:
uniform rules establishing a high level of consumer protection are adopted
at Community level and member states are prevented from adopting
stricter rules. A maximum harmonisation approach has already been
followed in the 2005 Directive setting common rules for unfair commercial
practices in relations between business and consumers.26 The same
approach also inspires the recent proposal of a broad Directive on
consumers rights, which will consolidate four different directives in the
area of consumer protection.27
4.4
Common rules for services
Since the 1980s, the Court of Justice acknowledged that the mutual
recognition principle can also be applied to services. However, it soon
became clear that the barriers to the establishment of a single market for
services cannot be removed solely on a case-by-case basis, by relying on the
direct application of the rules of the Treaty on the freedom of establishment
and the freedom to provide services. The removal of barriers required
coordination of national regulatory models, i.e. common rules.
Most directives follow a sectoral approach. They cover, for instance,
the regulated professions, insurance, banking and financial services,
services relating to travel and tourism, television broadcasting, air and rail
26
Directive 2005/29/CE.
Sale of consumer goods and guarantees, 99/44/EC; unfair contract terms,
93/13/EC; distance selling, 97/7/EC; and doorstep selling, 85/577/EC.
27
MARKET INTEGRATION AND COMPETITION POLICY | 87
transport, electronic communications, electricity and gas and postal
services.
The sectoral approach, however, was not able to tackle the barriers to
the freedom of establishment and the freedom to provide services existing
for a myriad of ever-evolving services that would never be covered by ad
hoc directives. Therefore, the 2006 Framework Directive on services was
adopted with the aim of removing all remaining barriers to the internal
market for services through horizontal framework rules.28 The Directive
requires member states to adopt measures of administrative simplification
and to remove unjustified regulatory restrictions. For restrictions included
on a black list, there is a irrefutable presumption of incompatibility with
Community rules. For restrictions included on a grey list, the presumption
is rebuttable. As for the provision of services, the Directive introduces a
statutory requirement for member states to apply the mutual recognition
principle and allows them to impose additional requirements only for a
narrow set of public policy reasons. Moreover, it strengthens
administrative cooperation mechanisms.
4.5
...including network industries
The experience of Community rules in network industries provides
important hints on the preconditions that must be met for a successful
setting of common rules.
Pro-competitive Community regulation of such industries has
traditionally met strong opposition due to the influence of public
ownership and the political weight of employee unions, and therefore
common rules aimed at opening markets to competition, as a rule, have
progressed slowly.
A relevant exception is provided by telecommunications, but it is
easy to show how the success of European regulatory policies in this area
should be attributed to rather unusual occurrences in the first half of the
1980s. In that period, at the international level, the fall in prices and the
very high growth of the US telecommunications industry, unleashed by the
structural separation of AT&T in 1982, were worrying developments to
The scope of the Directive covers all services with the exclusion of some activities
already covered by specific Community regulation and some specific services such
as, for instance, gambling activities or services provided by notaries.
28
88 | BRUZZONE & PROSPERETTI
European policy-makers, who feared for Europe’s competitiveness. The
very same developments were worrying for European producers of
telecommunications equipment, who feared falling irremediably behind
their American competitors, who were enjoying such exceptional market
growth. These parallel worries helped to foster a highly effective alliance
between the Commission and hardware producers, which was successful
in overcoming the strong resistance of telecommunications services
incumbents. Such a success was greatly facilitated by the widespread
perception that these operators were highly inefficient, as it became
immediately obvious in the UK, when the privatisation of BT and the
partial liberalisation of the market yielded immediate benefits in terms of
price and quality. Nothing succeeds like success, and this convinced even
the countries that were initially most reluctant towards liberalisation, such
as France and Italy, to gradually accept these policies.
The policy mix put in place to liberalise the sector was an interplay
between Council directives, based upon Articles 94 and 95, and
Commission directives, based on Article 86, which were politically feasible
because of the lack of significant opposition to the liberalisation measures.
Regulatory policy in telecommunications was strongly supported by the
antitrust provisions of the Treaty. In the early 1990s, the European
Commission indeed clearly signalled that it intended to extensively use
Article 82, together with Article 86 of the Treaty, in order to promote
competition in network industries. In the Sealink/Stena case, in which it
developed its ‘essential facility’ doctrine, it – unusually – decided to
publish the full text of a decision, despite the fact that the companies
concerned had in the meantime settled the controversy, and in so doing, it
naturally set an effective precedent.
Experience in the telecoms sector continued to provide important
hints in the following years. The new regulatory framework for electronic
communications, enacted with five directives in 2002, endorses the
principle whereby regulation should be used only where the application of
competition rules is insufficient, includes rules for the access to the network
and establishes common minimum rules concerning universal service and
consumer protection. The package of proposals was very well prepared by
the Commission, with a clear indication of the objectives and the proposed
measures. It has been observed that “this greatly helped to put the debate
on a concrete track for a constructive solution, which was acceptable to all
major players. When it came to negotiations in the Council and in the
MARKET INTEGRATION AND COMPETITION POLICY | 89
European Parliament, the basic structures for a solution had largely been
accepted and the debate could be based on this common ground”.29
The experience in the energy sector, whether gas or electricity, was
completely different. For a very long time there was no convincing threat
that procedures would be opened by the Commission against incumbent
operators on the basis of Article 82 of the Treaty, with reference to the
essential facility doctrine. A few attempts were made at national level, but
these were rather rare, and often late: in the E.ON Ruhrgas case, the
Bundeskartellamt’s objection was not endorsed by the German authorities,
and elsewhere no significant case occurred prior to 2000. This time lag
proved very costly in terms of regulatory policy, as it allowed incumbent
operators in the energy sector to prepare for liberalisation (it should be
remembered that drafting the various versions of the gas and electricity
Directives took about a decade), by thoroughly saturating existing power
and gas lines through the simple expedient of renegotiating take-or-pay
supply contracts, while extending their duration and increasing their
amounts.
Not having intervened during such a drawn-out ‘bottleneck
engineering’ phase, the Commission was subsequently faced with
considerable difficulties when new competitors repeatedly met the
objection by incumbents that they couldn’t access the grids because of neartotal capacity saturation. Following an extensive sector inquiry, the
Commission published a not particularly incisive Green Paper still
identifying – nearly 15 years after the submission of the first draft Directive
on the electricity market – harmonisation measures as the main way
forward, and proposing a goal, that of “developing a European grid”, to be
furthered through the setting up of a European gas and electricity
regulator.
Now, although the advisability of Community intervention in this
field is hardly challenged in theory, since there are clear cross-country
effects and equally clear economies of scale to be achieved in regulating
these sectors, a number of obstacles exist. In a strategic situation where
security of supply is all but certain, both for gas and electricity, different
national communities will no doubt react quite differently to the risk of
29
See Renda et al. (2009, p. 7).
90 | BRUZZONE & PROSPERETTI
supply disruption, and for that matter have different degrees of tolerance
vis-à-vis competition-distorting measures in energy markets.
Moreover, it isn’t immediately clear that (let’s say) French consumers
would be willing to ration their own electricity supply in order to provide
power to (let’s say) Italian consumers, should the latter be in need. In this
framework, where the calls for market and policy harmonisation strategies
are morally uplifting but devoid of any concrete impact, the Commission
finally concluded to resort – on a much larger scale than it had done
previously – to antitrust policy. After a detailed sector inquiry in electricity
and gas,30 the Commission has initiated foreclosure cases against E.ON,
EDF, ENI, Electrabel, Distrigaz and other companies, thus supplementing
possible local regulatory and antitrust slackness.31
5.
Coordinated implementation
The application of the subsidiarity principle involves not only the level at
which rules have to be established (Community versus national versus
local), but also how centralised the application of Community rules should
be.
In its recent recommendation on measures to improve the
functioning of the single market, the Commission stresses that it is essential
for a well functioning single market to have a proper system of
transposition, application, enforcement and monitoring of the common
rules and that further work is still necessary in this area.32 Internal market
scoreboards show that timeliness and quality in the transposition of single
market directives are still scarce. Even when directives have formally been
transposed, the frequency of infringement proceedings against member
states is a signal of bad implementation. Supplementary provisions that are
not necessary to transpose a directive are often added in the implementing
legislation, well beyond cases of shared competence where this is justified
by Community rules setting only minimum requirements.
30
The final report is in SEC (2006) 1724, 10 January 2007.
On the policy challenges in the energy sector, see the chapter by V. Termini in
this volume.
31
C(2009) 4728 final. See also the Commission Communication, “A single market
for 21st century Europe” (Single Market Review), COM (2007) 724 of 20 November
2007.
32
MARKET INTEGRATION AND COMPETITION POLICY | 91
The Commission therefore recommends that member states take a
more pro-active role in managing the single market, ensuring that it
functions well. In particular, it advocates a better coordination on single
market issues within member states, as well as initiatives aimed to facilitate
coordination and promote closer links between the administrations of
different member states. It envisages exchanges of officials responsible for
single market issues between national administrations and active crossborder cooperation on single market issues becoming part of the national
administrative culture. These can be viewed as the embryonic stages of an
integrated European public administration.
Further steps have already been taken in specific policy areas. An
important reference is provided by the institutional architecture for the
application of Community competition rules. For the control of state aid
and for merger control, enforcement is fully centralised, i.e. the
Commission has exclusive competence; for the application of Articles 81
and 82 of the Treaty, on anti-competitive agreements and abuse of
dominance, however, the task of public enforcement is shared by the
Commission and the competition authorities of member states. The
Commission and national competition authorities operate as a network
(European Competition Network), with its own rules for the allocation of
cases. For instance, the Commission is considered well placed to deal with
cases involving more than three member states and when a new
competition issue arises, since only Commission decisions are subject to the
scrutiny of the Court of Justice. The European Competition Network also
works as a forum for ‘soft harmonisation’ in the use of instruments and
procedures for the implementation of competition rules, i.e. in an area that
has not been harmonised by Community law.
While European Community agencies have been established in
several technical areas and for specific scientific or managerial tasks,33 so
far neither in network industries nor in financial sectors have proposals
aimed at full centralisation of supervisory and regulatory tasks at the
European level met a sufficient consensus. The idea to set up a European
The tasks of European agencies include, for instance, fisheries control, aviation
and maritime safety, disease prevention and control, the safety of chemical
products, food safety and the implementation of Community rules on trademarks
and designs.
33
92 | BRUZZONE & PROSPERETTI
regulatory authority for telecommunications meets the opposition of a
number of leading countries (United Kingdom, France, Germany). For
similar reasons, the proposal of a European regulator for gas or electricity is
unlikely to succeed, at least in the near future. Also the need to strengthen
prudential supervision in financial markets, strongly highlighted by the
recent financial turmoil, led to new institutional arrangements but not to
the establishment of fully centralised European authorities.
In most sectors, however, there is a clear trend towards closer forms
of coordination for the implementation of Community rules. The
arrangements emerging in the different areas are worth studying.
Groups or networks linking up the regulatory or supervisory
authorities of member states have been established in areas as different as
electricity and gas,34 consumer protection,35 public procurement36 and the
protection of personal data.37 More ambitious institutional arrangements
have been developed for electronic communications and financial services.
In electronic communications, the 2002 framework regulatory
package established a dynamic relationship between the Commission and
national regulatory authorities. It is not the Commission alone who decides
what markets should be regulated. The Commission issues a list of
candidate markets, which it periodically updates, but the decision
concerning whether, and with what instruments, to regulate each of these
markets in any country, is bestowed upon the national regulatory authority
(NRA).
The NRA needs to assess each of the candidate markets in order to
ascertain if they are sufficiently competitive. If they are not, it must impose
obligations upon operators having a significant market power; the
European Regulators Group for Electricity and Gas, with the task of advising
and assisting the Commission in the preparation of draft implementing measures
and to facilitate coordination of national regulatory authorities, contributing to a
consistent application of Community rules (2003/796/EC).
34
Enforcement network for consumer protection, established by regulation (EC)
2006/2004.
35
36
Public procurement network.
Data Protection Working Party, set up by Directive 95/46/EC with an advisory
role on Community initiatives and with the task to promote a uniform application
of the principles contained in the directives in all member states.
37
MARKET INTEGRATION AND COMPETITION POLICY | 93
appropriateness of such obligations must be assessed in the light of the
competition provisions of the Treaty, and of relevant jurisdictional
precedents. The draft decisions of the national authorities must be notified
to the Commission, which has one month to analyse them, and, if it feels it
necessary, to send its comments to the national authority. If the
Commission considers that the proposed measures create barriers to the
internal market, or has doubts concerning their coherence with Community
law, it can undertake an in-depth analysis for two more months, and it may
eventually request that the proposed measure is cancelled. The
Commission’s view of this consultation mechanism is that it has ensured a
consistent approach, in particular regarding market definition and SMP
analysis across Europe, brought sound economic analysis to the market
review process and resulted in increased transparency. Overall, this form of
cooperation between the Commission and NRAs led to better regulation
based on competition principles and contributed to the development of a
common European regulatory culture.
The Commission's comments on the proposed remedies gave
guidance towards a consistent regulatory approach across Europe, whilst
taking into account specific national circumstances. The Commission
focused on ensuring that remedies are appropriate, i.e. based on the nature
of the problem identified, proportionate and justified in the light of the
objectives laid down in the Framework Directive. Implementing a similar
approach in the electricity and gas markets would probably be quite useful,
especially if we consider the fact that national regulators in such sectors
have to bear strong pressures from their national incumbents, which often
limit their effectiveness. Moreover, it could help to reduce divergences in
the way national regulators are proceeding on a number of relevant
matters, such as network access and the rules to be applied to customers
that become eligible.
For financial services, since 2000 a new decision-making structure has
been established under the ‘Lamfalussy approach’ with the aim to improve
regulation across the EU. Initially it concerned only the security sector, but
afterwards was extended to banking, insurance and investment funds.
Under the Lamfalussy approach, framework directives set out broad
regulatory principles (level 1), while detailed secondary legislation is
entrusted to sectoral committees made up of officials from national
94 | BRUZZONE & PROSPERETTI
governments and chaired by the Commission (level 2).38 Further sectoral
committees composed of national supervisory authorities39 play an
advisory role on secondary legislation and monitor the implementation of
common rules in the member states, with the task to ensure convergence
but without binding powers (level 3).
Recently, the Commission has approved a new package of draft
legislative proposals aimed at strengthening the European system of
financial supervision following the financial crisis.40 As far as the
implementation of Community rules is concerned, three sectoral European
Supervisory Authorities,41 which will be composed of representatives of
national supervisory authorities and of the European Systemic Risk Board,
will take over all the functions of the previous level 3 committees with key
additional powers, including the power to issue binding technical
standards in specific prudential areas, as well as binding interpretations of
EU rules and orders to comply in individual cases. They will also be able to
settle disagreements between national supervisors and will play a
coordination role in emergency situations.
Interestingly, even in the much less technical area of the Directive on
services in the internal market, special institutional arrangements have
been deemed necessary to ensure an effective and coordinated
implementation of Community rules. In particular, each member state is
required to present a report to the Commission on the authorisation
regimes and the potentially restrictive regulatory provisions that it intends
to maintain, demonstrating their compatibility with Community rules.
European Banking Committee, European Insurance and Operational Pensions
Committee, European Securities Committee and Financial Conglomerates
Committee.
38
Committee of European Banking Regulators, Committee of European Insurance
and Occupational Pensions Supervisors, and Committee of European Securities
Regulators.
39
The proposal provides for a two-tier system, with a totally new upper level
focusing on systemic risk and macro-prudential supervision (European Systemic
Risk Board – ESRB) and a lower level for micro-prudential supervision (European
System of Financial Supervisors – ESFS).
40
European Banking Authority, European Insurance and Occupational Pensions
Authority and European Securities and Markets Authority.
41
MARKET INTEGRATION AND COMPETITION POLICY | 95
Each report will be forwarded to all member states and will be subject to
mutual evaluation. Moreover, the introduction of new restrictions has to be
notified to the Commission and reviewed under a Community procedure.
The notification and mutual evaluation procedure is essential to bring out
in the open and subject to review all measures potentially violating
Community law. Notably, the provisions of the Directive do not entail any
new legal principle since they basically incorporate general principles
already established by the case law of the Court of Justice. However, by
imposing transparent procedures and a systematic review of restrictions,
which have to be notified to the Commission and member states and
justified one by one, they strengthen the presumption in favour of free
movement and open access.
6.
Conclusions
Any supranational regulatory activity faces a highly complex scenario,
where market failure problems may be rather different, and of different
degrees of seriousness, from country to country. Furthermore, there are
bound to be substantial differences across national communities concerning
the perceptions of such seriousness. Citizens of different countries will also
have different stances vis-à-vis regulation, because they will have different
value systems, and different views concerning the correct degree of
consumer protection.
Supranational regulatory intervention dictated by the overall aim of
defending free trade among member states cannot ignore the fact that there
are potentially relevant trade-offs between such aim and other relevant
objectives of economic policy. It cannot ignore, either, the costs of
regulation: if it's true, in general, that free trade fosters welfare, social
welfare can be negatively affected also by regulatory intervention.
Trying to implement extensive harmonisation policies is bound to
foster diffuse resistance to regulation. In some instances (e.g. popular
English press), this can be explained with historical factors, such as the
remaining fragments of imperial culture and the insularity of the policy
debate in the United Kingdom. In others – such as for services publics in
France – it can be explained by differing political-economic traditions.
But a quick search on the internet concerning European regulation
quickly reveals hundreds of sites, blogs and discussion fora, airing violent
opposition to one or more Community regulatory measures, and it seems
96 | BRUZZONE & PROSPERETTI
doubtful that they can be liquidated by simply labelling them as the result
of ignorance or manipulation.
Over-regulation at Community level is certainly not the answer to the
current challenges. The strategy for internal market and competition
policies in the 21st century requires a more sophisticated combination of
measures: better regulation initiatives to make Community policies closer
to citizens and their benefits more easily perceived; the safeguard of the
fundamental market principles without undue rigidities; appropriate
flanking measures to meet social concerns and a careful pursuit of the right
degree of harmonisation in the different policy areas. Finally, it requires the
search for more effective forms of interaction between EU and national
public administrations, with a view to eliminate the current weaknesses in
transposition and application which undermine the establishment of a true
single market.
References
Amato, G. and L. Laudati (eds) (2001), The Anticompetitive Impact of
Regulation, Cheltenham: Edward Elgar.
Barnard, C. (2004), The substantive law of the EU, Oxford: Oxford University
Press.
Buccirossi, P. (2009), “Competition Policy and Productivity Growth: An
Empirical Assessment”, paper presented at the Lear Conference on
What Makes Competition Policy Work?, Rome, July.
Ilzkovitz, F., A. Dierx, V. Kovacs and N. Sousa (2007), “Steps towards a
deeper economic integration: The internal market in the 21st century –
A contribution to the Single Market Review”, European Economy,
Economic Papers No. 271, January.
Jestaedt, T., J. Derenne and T. Ottervanger (2006), “Study on the
Enforcement of State Aid Law at National Level”, study produced by
external consultants for DG Competition, European Commission
(http://ec.europa.eu/comm/competition/state_aid/studies_reports
/studies_reports.cfm).
Micossi, S. (2006), Fixing the Services Directive, CEPS Policy Brief No. 100,
Centre for European Policy Studies, Brussels, 26 April.
Pelkmans, J. (1998), “A European Telecoms Regulator?”, in P. Vass (ed.),
Network Industries in Europe, Centre for Regulated Industries, London.
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Renda, Andrea et al. (2009), Policy-making in the EU: Achievements,
Challenges and Proposals for Reform, CEPS Paperback, Centre for
European Policy Studies, Brussels.
Stigler, G.J. (1981), A comment on Joskow and Noll, in G. Fromm (ed.), Studies
in public regulation, Cambridge, MA: MIT Press.
van Ark, B., M. O’Mahony and M.P. Timmer (2008), “The productivity gap
between Europe and the United States: Trends and causes”, Journal of
Economic Perspectives, Winter.
6. ENERGY AND EUROPEAN
INSTITUTIONS
VALERIA TERMINI
1.
Background
As was the case at the end of the 1950s, Europe today faces an
extraordinarily difficult situation in the energy sector. The Rome Treaties
had then provided a solution and long-term prospects to the energy supply
problems of the previous decade. The European Atomic Energy
Community Treaty entered into force on 1 January 1958, with the aim to
guarantee a shared approach to energy security. These institutions not only
provided Europe’s civilian nuclear energy industry with a common
strategy: they also contributed to the launching of the European Economic
Community.1
Today, for the European Union, the energy issue is even more
complex. Externally, the issue involves negotiating with primary-source
producing countries ‘with a single voice’ and facing competition from highgrowth countries that are currently the largest energy consumers. Between
now and 2030, over 87% of the incremental demand for energy will be
accounted for by emerging economies, and just over half of the increase
Together with the Treaty establishing the European Economic Community, the
participants in the Rome Conference also signed, on 25 March 1957, a Treaty
establishing the European Atomic Energy Community (Euratom) which entered
into force on 1 January 1958. Subsequently, at the Rome Summit convened for the
10th anniversary of the EEC and the EAEC (or Euratom), held 9-30 May 1967, a
decision was reached to unify the bodies of the three communities: ECSC, EEC and
EAEC (initially separate, with the exception of the Assembly and the Court of
Justice); on 1 July 1967, the Treaty merging the executive bodies entered into force.
1
98 |
ENERGY AND EUROPEAN INSTITUTIONS | 99
will be represented by China and India (International Energy Agency,
2008). A further difficulty is that of negotiating with countries and regions
whose use of energy sources is basically political, as is the case with Russia,
Venezuela and Nigeria.
Measures must also be taken internally. The EU countries’ industrial
development strategies require innovation; the huge investments needed to
develop alternative energy sources have to be planned and implemented;
the transmission infrastructure has to be developed and cross-border
connections strengthened so as to broaden the spectrum of potential
primary source supply, inter alia in terms of countries, and interconnect
domestic markets. Policies are also needed to contain energy demand
growth (European Commission, 2007).2
The role and mandate of European institutions remain crucial in this
respect. Experience has shown that long-term European energy policies
readily revert to wishful thinking when European institutions are not given
a clear mandate.
True, the Lisbon Treaty is innovative. It stresses the need for
European solutions regarding energy and environment, especially
considering the urgent need for global strategies. But if we focus on the
ability to implement a common energy policy, we see that unfortunately
the Treaty is only innovative in terms of recommendations to national
governments. Also, this is not enough to overcome the major contradiction
between domestic policies and the European energy strategy – a
contradiction that continues to jeopardise the emergence of a European
market. And that explains the limited effectiveness of policies and the
consequences described below. Before analysing policies in substantive
terms, section 2 will however attempt to recall the main institutional phases
that have led Europe from Euratom to the Lisbon Treaty.
2.
European Institutions: A necessary but insufficient
precondition. From Euratom to the Lisbon Treaties
With the 1958 Treaty establishing the European Atomic Energy
Community (EAEC), the six founding countries, including Italy in a
significant momentum-giving role, aimed to share – in the new nuclear
Under a business as usual assumption, European energy demand is scheduled to
increase at an annual rate of 1.7%.
2
100 | VALERIA TERMINI
industry – the definition of joint safeguard and security criteria, and the
implementation of an investment policy no single state had ever
contemplated. Furthermore, the Treaty aimed to “ensure that all users in
the Community receive a regular and equitable supply of ores and nuclear
fuels”, to quote the fourth mission listed under Title I of the Treaty, and
defined measures to this end.3 The achievement of this goal was to be
guaranteed through the newly set up International Atomic Energy Agency
(IAEA). The IAEA was granted a right of option on ores, source materials
and special fissile materials produced in the territories of member states
and an exclusive right to conclude contracts relating to the supply of ores,
source materials and special fissile materials coming from inside the
Community or from outside.
In the face of this institutional architecture, the European energy
policy outlined in the Lisbon Treaty appears to be a more or less ordered
set of wishes and invitations to show goodwill towards member states.
Institutions, however, are only a precondition, necessary but not
sufficient, for the development of a common energy policy strategy. Even
then, in the wake of the original treaty, a contradiction had quickly
appeared between the domestic policies of a number of member states,
such as France and Italy, and the European strategy for a common nuclear
policy. Interestingly, this contradiction inevitably ended up weakening not
only Europe’s energy policies but also its very institutions.
In particular, the European medium- and long-term strategy soon
entered into conflict with the foreign policy of President De Gaulle, who by
1958 had significantly dampened the French push for European political
integration. He opposed in fact the United Kingdom’s entry in 1963 and
refused to bind France to the pact on civilian uses of atomic energy. It was
also De Gaulle who opted for the ‘force de frappe’: a nuclear arsenal aimed at
granting French foreign policy the power of nuclear deterrence. France thus
embarked on its nuclear testing programme: starting with Gerboise Bleue,
tested in the Algerian Sahara in 1960, through to the first H bomb in 1968,
and the explosion in the Polynesian atoll of Mururoa in 1995.4 Euratom’s
role was thus made weaker.
3
Article 52 of the Treaty.
4 This approach was reaffirmed in 2006, when President Jacques Chirac, addressing
military staff stationed at a nuclear submarine base in Brittany, stated that France,
ENERGY AND EUROPEAN INSTITUTIONS | 101
As we know, France’s opposition was at the time compounded by
Italy’s difficulties. Italy was then at the vanguard of research and
development work for the first facilities implementing the peaceful use of
nuclear energy. Following projects launched in 1953 by the National
Committee for Nuclear Research (Comitato nazionale per le ricerche
nucleari – CNRN) with the United States and with World Bank funding,
following the building of the first nuclear power plants in Garigliano,
Latina and Trino Vercellese, in the early 1960s Italy was forced to scale
down its role for domestic reasons5 until the referendum eventually put a
‘final’ stop to Italy’s nuclear policy. The dismantling in Italy of transatlantic
nuclear research projects, together with France’s attitude and De Gaulle’s
opposition, gradually led to a scaling down of Euratom. Having come into
conflict with the domestic policy of two of the leading founding states, the
Community’s energy strategy shattered and since then has proved difficult
to rebuild.
The oil crises of the 1970s, with the inflation, industrial restructuring
and even lifestyle changes they brought in their wake, were contended
with individually by the European countries. Given the lack of a common
policy, industrialised countries found themselves singularly deprived of
bargaining power when faced with the new primary energy producers’
cartel, and were thus vulnerable to severe consequences for their economic
growth. To this the Germans responded by adopting policies geared to
major industrial restructuring and currency revaluation, while the Italians
and the British conversely went for a set of competitive devaluations.
In other words, during the first energy crisis, Europe did not speak
with one voice. Euratom’s Agency was still there. But its history had
already shown how difficult it is to set up institutions capable of giving
Europe this one voice in terms of energy security, while avoiding conflict
with member states’ domestic strategies.
if threatened with a terrorist attack, could resort to nuclear retaliation. According
to Chirac, “the vital interests to be protected would include both the security of
strategic supplies, such as energy, and the defence of allied nations”.
See Rigano (2002) for a review of the changes in Italy’s strategy, which led it from
front-line involvement in early civilian nuclear projects to their scrapping in the
mid-1960s.
5
102 | VALERIA TERMINI
The issue was to arise again, albeit with different connotations, after
signing the Maastricht Treaty. Europe decided to go for deregulation of
both electricity and gas markets in order to develop a European energy
market, contain energy prices and improve member states’ security of
supply. But European institutions were given no mandate regarding
energy; the project of bringing together domestic energy policies in order to
liberalise electricity and gas markets was ultimately watered down,
yielding a general stance, sanctioned by directives as of the mid-1990s, and
the hope that the Competition Authority would contribute to the ex novo
emergence of competitive markets, thereby making up for other
institutional deficiencies.
At the institutional level, Directives on the liberalisation of domestic
power and gas markets6 focused on promoting national mechanisms to
ease liberalisation in diluting the market power of dominant operators and
introducing elements of competition. In particular, they called for the
setting up of independent domestic sectoral supervisory authorities to
support the liberalisation process; the creation of wholesale electricity
exchanges to provide markets with transparent pricing and a platform
accessible to new producers; and finally – underpinning the whole process
– they required that natural monopoly activities (managing the electricity
transmission grid and gas transport) be unbundled from the potentially
competitive activities both upstream and downstream of the grid (energy
production and sale). This entailed a fragmentation of activities pertaining
to the production, transmission, distribution and retail sale of electricity
and gas, which had traditionally been carried out in an integrated fashion
by major public utilities with national monopoly powers in these sectors.
Europe’s stance carried on in the decade following 1996, the year of
the first Directive; new targets were added – liberalising consumption,
promoting energy conservation, suggesting improvements in energy
efficiency and compliance with new environmental criteria – but the
European energy policy remained unchanged, anchored to the role of
6 Directive 96/92/CE of the European Parliament and the Council of 19 December
1996 concerning common rules for the internal market in electricity, Italian
Gazzetta ufficiale n. L 027 del 30/01/1997; Directive 98/30/CE of the European
Parliament and the Council of 22 June 1998 concerning common rules for the
internal market in natural gas, Italian GU L 204 del 21.7.1998.
ENERGY AND EUROPEAN INSTITUTIONS | 103
existing European institutions and the setting up of national mechanisms to
promote energy market liberalisation, against a backdrop of considerable
diversification.7
A break in the institutional set-up only occurred in 2007:
environmental issues were directly introduced in the stance, goals and
mechanisms of European energy policy through the ‘third energy package’
and the signing of the Lisbon Treaty which modified segments of the Rome
Treaties relating to energy and the environment.
With the Lisbon Treaty,8 European institutions did not actually make
any significant step forward to develop the instruments required for a
common European energy strategy.
The Lisbon Treaty includes new articles concerning energy and
climate change, in both the revision of the Treaty on European Union and
in the Treaty on the Functioning of the European Union. The Euratom
Treaty is added thereto, in a partly revised version that had not been added
to the Constitution. Energy is introduced through the solidarity provisions,
by which states agree to support one another in case of need.9 The need to
fight climate change through international action is also specified.
Competition, however, is no longer included in the Union’s fundamental
goals, and is mentioned instead in an additional protocol. This latter
provision meets a request put by France, which had asked for the
elimination of references to a common market subject to free competition.10
The institutional architecture gained an additional dimension with the
establishment of the EU emissions trading scheme or ETS, which is part of the EU’s
commitment to comply with agreed targets under the Kyoto Protocol (see
Directive 2003/87/CE of the European Parliament and the Council of 13 October
2003 establishing a scheme for greenhouse gas emission allowance trading within
the Community).
7
8
Signed by Heads of State and Government, 13 December 2007.
9
See Article 122 of the Treaty on the Functioning of the European Union.
Title XX has been replaced by a new title and by a new Article 176A on energy,
which reads: “1. In the context of the establishment and functioning of the internal
market and with regard for the need to preserve and improve the environment,
Union policy on energy shall aim, in a spirit of solidarity between Member States,
to: (a) ensure the functioning of the energy market; (b) ensure security of energy
supply in the Union; (c) promote energy efficiency and energy saving and the
10
104 | VALERIA TERMINI
Despite these provisions, the authority and ability to act effectively in
the field of both energy and the environment remain quite modest.11 There
is still no mandate and no authority conferred to Council regarding energy.
Furthermore, on the institutional structure, discussions still focus on
the need to provide the European Union with a regulatory authority
entrusted with supporting liberalisation in the energy sector. Some have
claimed that the institutional vacuum could be filled by assigning a more
extensive and incisive role to the antitrust authority, but this step would
not help resolve a glaring contradiction between market liberalisation
policies and energy security policies, to be analysed in greater detail in
section 3 below. Realistically, in order to overcome this contradiction, what
is needed is an explicit mandate regarding energy policy that would allow
the European Union to negotiate supply contracts on behalf of all member
states. Moving forward with liberalisation is indeed difficult without the
support of a European sectoral authority or a board of national regulators
with a European mandate and the right authority. What is at stake is both
the institutional dimension defining the relationship between the Union
and the member states in the field of energy, and the ability to stimulate
and coordinate member states’ industrial strategies regarding energy; but a
significant factor is the spectrum of possible mechanisms.12
Integrating national markets into a European energy market does
indeed require adaptation to common rules on the part of countries or
development of new and renewable forms of energy; and (d) promote the
interconnection of energy networks.”
Article 4 of the Treaty thus reads: “The Union shall share competence with the
Member States in energy, as in the following principal areas (…)e) environment, f)
consumer protection, g) transport, h) trans-European networks.”
11
These range from the definition of concerted strategies in the guise of Council
recommendations, directives or regulations, to the activation of the enhanced
cooperation modes taken up and redefined in Title IV of the Lisbon Treaty on the
Functioning of the European Union regarding energy and the environment (see
contribution by Giacinto della Cananea elsewhere in this volume). Title IV takes
over the heading of Title VII, “Provisions on Enhanced Cooperation” and Articles
27A to 27E, 40 to 40B and 43 to 45 are replaced by Article 20, which also replaces
Articles 11 and 11A of the Treaty establishing the European Community. The same
articles are also replaced by Articles 326 to 334 of the Treaty on the Functioning of
the European Union.
12
ENERGY AND EUROPEAN INSTITUTIONS | 105
governments starting off from starkly different positions. As regards
primary source availability, for instance, some countries have access to
considerable supply: either because they have nuclear power plants, as do
France and Finland, or because they have oil, as does Norway and to a
lesser extent the UK, or because they have coal, as does Poland, or yet again
because they have opted for renewable sources of energy, as have
Germany, Denmark and the Netherlands. But other countries, such as Italy
or Spain, are conversely far more dependent on external supply. From
another point of view, that of market openness, the reality shows large
differences, which translate into highly asymmetric public policies and
corporate strategies.
The issues raised in Ferdinando Salleo’s contribution to this volume
regarding European identity in connection with enlargement policies are
quite relevant here as well. Is the Union in the process of building a model
that will feature a variety of different levels and densities? Will Europe end
up having a variable geometry, based on enhanced cooperation schemes?
Or in an attempt to break the standstill on institutions and authority that is
currently jeopardising the construction of a European energy market, will
we witness in the field of energy and environment the same granting of
opting-out rights that the UK and Ireland have insisted upon in justice and
home affairs?
In all these issues, European policy has to deal with a genuine conflict
between the definition of its own energy strategy and the national demands
that undermine its effectiveness. Brussels has been calling for liberalisation
and market openness as a first step in the construction of a common
European energy market. But national states, which have to bear the
burden of singly ensuring security of supply, cannot sign on to this in the
required fashion. This induces divergence among domestic policies, as they
are necessarily involved in more or less explicit support of their national
champions. This leads to free-rider behaviour in negotiations with
producers. Which in turn generates a vicious circle that weakens both the
Union and all its member states in international negotiations – as we will
see in the following section.
3.
European strategy and domestic policies: Goals, conflicts and
proposals
The starting point is that the European Union has never had a mandate to
implement a common energy policy. It has therefore from the very onset
106 | VALERIA TERMINI
been forced to adopt a gradual and indirect strategy, at times resorting to
general policy statements, at others to the definition of shared rules.13
And precisely because both instruments and institutions were
indirect and inappropriate, the path ended up being unnecessarily
tortuous. As mentioned above, an initial approach was outlined by the 1996
and 1998 Directives on domestic market liberalisation, which aimed to
reduce internal barriers within the Union’s markets for electricity and gas
in order to develop a European market. But the European Commissioner
for energy did not have an explicit mandate to do anything more than
indicate a general stance and address recommendations to member states.
Member state responses have proved quite asymmetrical. At one
extreme, France, with its very strong state sector, was keen on defending its
national champions, with their vertically integrated production structure.
At the other extreme, the UK and to some extent Italy as well, from 1999 to
2007, subjected their electricity markets to significant change, involving
unbundling, production break-up, market liberalisation and supervision by
a sectoral authority.
On the other hand, in the absence of a European regulator
empowered to impose unbundling rules, in order to dissociate upstream
monopolies from downstream distribution and sales of gas and electricity,
the only way forward was to suggest that governments and if applicable,
industry-level authorities, consider separating grids from service provision:
in terms of ownership, functions, corporate structure or simply from an
accounting standpoint.14
In reality, at the beginning of the process, there was indeed a strong
liberalisation push: electricity exchanges were set up by most member
states, although unevenly and with quite varied fortunes. The UK’s ‘Pool’
was thus highly liberalised, with initial guidelines in 1990 making it
mandatory for all wholesale electricity contracts to be brought to the
13
See Article 249 (former Article 189) of the EC Treaty.
Of the two modalities set forth once again in the Commission’s recent
Recommendation (2007) – namely the corporate separation of companies owning
the grid/network from those entrusted with operations, or the setting up of an
Independent System Operator or ISO (under which the vertically integrated utility
retains grid/network ownership and receives an administered return rate, but is
not responsible for grid/network management or development).
14
ENERGY AND EUROPEAN INSTITUTIONS | 107
exchange; ten years later, in 2001, it was closed down and replaced by a
number of platforms for the bilateral exchange of energy contracts (Neta).15
The Spanish Exchange has conversely retained largely administered pricing
for wholesale transactions. And finally Italy complied completely and
relatively quickly to all the European directives, but it then reverted to
unified management and ownership of the national electricity grid with
distinctly unsatisfactory governance.
The unfavourable international context at the beginning of the new
millennium – such as the Enron failure in 2002 and the Californian
electricity crisis of 2001, even if caused by bad management and/or control
and regulatory mistakes – increased government reluctance to renounce
tried and tested practices such as entrusting security of energy supply to
major public monopolies. Support for the European single market
development strategy, to be achieved through domestic market
liberalisation, thus dwindled to a bare minimum. And gas market
development experienced even more difficulties, inter alia because of
Europe’s notable dependence on Russian gas fields.
This push to liberalisation occurred at the end of the 1990s, at a time
when fossil fuel prices appeared to be contained – notwithstanding the fact
that 53.8% of Europe’s consumption is met by fossil fuel imports (see
European Environment Agency, 2008).16
The contradiction between liberalisation policies and energy security
strategy has eventually blown up. It has blown up with the rise in oil
prices; it has blown up with the Russian gas crisis, triggered by Putin both
for reasons of domestic politics and to raise his bargaining power
internationally. By this token, the Russia-Ukraine dispute regarding natural
gas provision in January 2006, and the further dispute involving Russia and
Belarus in January 2007 are just the tip of an iceberg that could in the end
dramatically highlight Europe’s vulnerability (Stern, 2006 and 2007).
Neta was introduced in March 2001, and Betta (British Electricity Trading and
Transmission Arrangements) on 1 April 2005.
15
Europe’s dependence on hydrocarbon imports is growing. Under a business-asusual assumption, primary source imports are forecast to rise from 50% of current
consumption to 65% in 2030; more specifically as regards gas, imports are
scheduled to increase from 57% of total gas consumption today to 84% in 2030; for
oil, the rise will be from 82% to 93%.
16
108 | VALERIA TERMINI
It was only then that the contradictory nature of asking member
states to break up their major public utilities appeared for what it was
worth. Or rather, the contradictory nature of asking them to do so prior to
having set up the institutions, authorities and mandates needed to ensure
the European Union’s security of supply through unified negotiation. A
process, the incompleteness of which became obvious with the gas crisis
and even before that, with the fallout from the 9/11 attacks and the
subsequent increase in oil prices, heralding ever more uncertain trends.
It has become terribly obvious that neither Brussels’ incentives nor its
recommendations ever yielded the desired outcomes. But hoping they
would was unreasonable. And the outcome of a number of policies
introduced by the European Commission shows that it wasn’t only the
instruments that proved inadequate, but the general strategy.17 A few
examples suffice to highlight the consequences of this contradiction
between European strategy and domestic policies, as in the case of the
plans for the Trans-European Networks (TEN-E) – those cross-border
networks designed to facilitate the interconnection of domestic markets.18
And the strategy aimed at improving gas supply by building liquid gas
vaporisers highlights similar problems in the gas sector.
The TEN-E has a complex procedural architecture: it involves an
incentive policy aimed at strengthening cross-border connections between
electricity transmission grids on the European continent, so as to broaden
the benchmark electricity market. Ten years after inception, it has yielded
one-tenth of its expected outcome. And attempts at importing liquid gas
via sea, supported by the widespread building of vaporisers, with a view to
freeing gas-importing countries from their dependence vis-à-vis a small
The reference framework is provided by amendments to Directives 54/03 and
55/03, amendments to the Electricity and Gas Regulations (1228/03 and 1775/05)
and by the European Council decisions of March and December 2006. Currently,
Directive 2005/89/CE requires that national regulatory authorities report annually
to the Commission on security of supply in electricity; Directive 2004/67/CE
introduces this same reporting requirement for gas supplies as well as for legal
frameworks aimed at developing investment in infrastructure.
17
Trans-European Networks (TEN-Energy) concern projects of common interest
defined and regulated in 1996 with subsequent updates in 1997, 1999 through to
2003. See “Trans-European Energy Networks. Policy and Action”, Lux. 1997 and
http: //europa.eu.int/comm/ten/energy/legislation/index_en.html.
18
ENERGY AND EUROPEAN INSTITUTIONS | 109
number of producers – in particular Russia – and transportation systems
have yielded equally minimal results.
Setting utopia aside, it is clearly difficult to convince utilities to invest
in cross-border transmission infrastructure with a view to broadening the
domestic markets from which they currently derive significant oligopoly
profits. The only way to do this would be to involve these very same
utilities and national governments by having them espouse the mediumterm advantages they stand to derive from a unified European energy
market: in terms of security strategy, joint bargaining power, more
competitively priced supply, increased growth opportunities, corporate
synergies beneficial to innovation, research and transfer of cutting-edge
technology. All in all, these are all long-term benefits that would accrue to
Europe’s industry, upon completion of the liberalisation process, including
in terms of competitiveness.
However, the real difficulties concern Europe’s energy security policy
and the lack of a corresponding mandate. If responsibility for ensuring gas
supply – an essential tenet of energy security – rests exclusively with
national governments, which in recent economic history, since the end of
World War II, have shifted this responsibility to domestic utilities (the
former public monopoly incumbents), the utilities end up representing
citizens in the negotiation of contracts with non-EU producer countries
such as Russia, Nigeria, Algeria, Turkmenistan and Azerbaijan. And
governments must then, together with their utilities, assume the full risks
of political uses of primary sources and political instability in transit
countries. Add to this the absence of supranational rules and guarantees
regarding network/grid access. Even the Energy Charter, designed to
guarantee state reciprocity and third-party access to networks/grids, is
pending ratification by Russia. And Russia can thus decide to not tie itself
down in its bilateral negotiations with European countries’ utilities. So far
these utilities’ strategy has been to enter into bilateral contracts with the gas
monopolies in the upstream segment of the production stream, especially
in Russia. And this is a strategy shared, more or less openly, by their
governments.
The political insecurity is now compounded by economic insecurity
regarding supply availability. Faced with Putin’s new programme to
diversify exports by increasing Asia’s share, one is beginning to wonder
whether Russia will be able to deal with growing internal demand while
continuing to export the amounts of gas required by Europe. One also
110 | VALERIA TERMINI
wonders whether Putin’s strategy, which involves nationalising and using
energy as a priority foreign policy instrument, is compatible with the
investment policy required to develop this sector. The low level of gas
prices, strictly correlated to those of oil, in the 1990s has not encouraged
any significant investment to improve the extraction efficiency and
network infrastructure functionality. Similarly, even when prices were
high, the additional profits accrued by the gas industry were used to offset
low-income growth (Gaddy & Ickes, 2002).19
Faced with these difficulties, European governments and their
utilities have attempted to negotiate an increase in supply contract
duration. Putin has in fact granted European countries 10- to 15-year
extensions, thereby ensuring in 2006 additional profits of about €39
billion.20 However, as these contracts have a take or pay structure, they
require rigid long-term buyer programming: the amounts acquired will in
any event have to be paid for, regardless of whether they are actually
taken.
For this reason too, the opening up of the gas market that can be
activated through the building of vaporisers does represent, in the long
run, an alternative programming model, that may introduce supply
flexibility and competition, by diversifying both sources and suppliers. But
in the short run, by introducing demand flexibility, it would go against
national energy security policies, weakening the bargaining power of major
utilities – having to pay in any case the predetermined offer – compared to
a small number of producers, the leader of which is Gazprom.
In this context, the way in which vaporisers fit into a highly
sophisticated process requires further thinking to devise a comprehensive
strategy covering all the phases of player and country involvement in the
gas industry. Initially devised to make gas supply more flexible, vaporisers
have in fact yielded quite disappointing results in terms of unifying the
European energy market through virtuous and incentive-driven processes,
as has been the case with TEN-E. In this case as well, the problem was not
The situation is similar with respect to oil, where Russia ranks second in terms of
global output after Saudi Arabia, with a 2007 average output of about 9.5 million
barrels a day.
19
While it has maintained a policy of annual contracting with CIS states, at
significantly lower price levels.
20
ENERGY AND EUROPEAN INSTITUTIONS | 111
only inadequate funding. What really emerged was a radical conflict
between Europe’s medium- and long-term vision on the one hand, and the
goals pursued by players assumed to orient their corporate strategies to the
achievement of common objectives, on the other.
4.
Europe’s relationship with the rest of the world: Energy security
and climate change
A third crisis dimension – that of environmental sustainability – has latched
on to the above-mentioned difficulties, which may nevertheless open up
new prospects. This is an issue where Europe has conquered a leadership
role even though so far results have been more significant in political terms,
with the driving role taken on by Europe in the Kyoto Protocal process,
than in strictly environmental terms, i.e. that of containing emissions levels
globally.21
It is therefore essential that we now reflect on the EU’s interests, but
without losing track of the role it may play in the emerging multipolar
scenario and the promotion of multilateral negotiations.
At the international level, as well, the issue of which institutions to
empower with responsibility for process support is crucial. Clearly there is
a need to move beyond the ‘divide and conquer’ policies that often
characterise US bilateral negotiations with primary source producers in
Latin America and Asia, or its strategic and military approach to Middle
Eastern producer countries.
It is equally essential to further the development of the world’s
poorest countries. It is a known fact that today 2.5 billion people produce
energy by burning wood, plant waste and dung, in a very damaging use of
biomass, while another billion is totally deprived of any access to energy.
The United Nations Fourth Report on Climate Change, a reference for policies
aimed at improving climate conditions, indicates that by mid-century global
emissions of gas pollutants will need to be reduced by at least half as compared to
1990 levels in order to halt the increase in global warming. The contemplated 20%
unilateral reduction in European emissions by 2020 corresponds to less than 4% of
the reduction called for globally. According to computations, by 2020 CO2
emissions will exceed the 1990 levels by over 60%, especially as a result of rising
energy – and in particular fossil fuel – demand, with China, the United States and
India coming in first, second and third (Skinner, 2006).
21
112 | VALERIA TERMINI
Not even towards Africa does the EU have a unitary strategy capable of
standing up to China’s new aggressive policy (consider for instance the
close political connection to Angola, thanks to which China has acquired
offshore exploration rights in exchange for loans; or to Nigeria, which has
granted off-shore exploration rights to the Chinese state utility in exchange
for roads and infrastructure).
Even the flexible mechanisms provided for in the Kyoto Agreements
(Joint Implementation and Clean Development Mechanisms), which aim to
promote investment in clean energy production and use through
partnerships between businesses based in the industrialised countries that
have ratified the Kyoto Protocol (and that are therefore listed in Annex I),
and in developing countries (not in Annex I), would require dedicated
structures and institutions, in addition to a far more active and coordinated
European Strategy.
According to the World Energy Outlook 2008, investments totalling
$22,000 billion, nearly $4,000 billion in China alone, will be required by
2030 (see IEA, 2008). Clearly, this raises the issue of where the money is to
come from, considering that major uncertainties regarding both political
context and primary source rules and prices are likely to distort very longterm decisions. International financial institutions will obviously have to be
the first to provide answers.
In this field as well Europe tends to put forth the multilateral
approach it embodies. This was clear in Bali where for the first time
Finance Ministers had been invited to take part in negotiations aimed at
defining financial rules and instruments for the post-Kyoto period. This
was equally clear in the agreement signed last October in Lisbon by a
subset of European countries that has given rise to the International Carbon
Partnership (Icap). The idea underpinning the agreement is precisely that
of setting up a joint fund on the basis of a broader emissions market than
the one we currently have, so as to gain access to significant funding for
both technology transfers and climate change mitigation and adaptation
measures for the least developed countries. That said, it also reflects
economic principles according to which the negative externalities of
emissions generation must be priced and factored in so as to reduce
industrial free-riding. The multilateral approach has been well received:
significantly, the agreement was also signed by a number of US states (in
particular New York, New Jersey and California) that have been exerting
pressure on the US Administration to participate in the new multilateral
ENERGY AND EUROPEAN INSTITUTIONS | 113
agreements launched by Europe, and thereby correct its refusal to
participate in the Kyoko Protocol.
By its very nature the energy/environment problem calls for
concerted global solutions. This method, supporting multilateralism and
the United Nations’ role for the management and direction provided to
global negotiations for the post-Kyoto period, has proved positive; it has
inter alia allowed for the participation in the negotiations of industrialised
countries that had not signed on to the Kyoto Agreements, such as the
United States and Canada,22 and the active involvement of China and India,
countries that are contributing the most to emissions growth globally, as
well as that of Indonesia, Malaysia and African and Latin American
countries. It was the latter in actual fact that forced industrialised countries
to give serious attention to the slotting into the negotiations of
programmes, in particular financial, for adaptation and mitigation in the
face of climate change, and support for the transfer of low-emissions
technology and combating deforestation.
The European Union has therefore scored points in terms of
methodological process and leadership, but it is proving to be much
weaker in terms of content and policy efficiency. As a result it is unclear
whether it will manage to preserve its ‘multilateralist’ leadership position
vis-à-vis countries such as Japan and Canada, or vis-à-vis Asia.
The US administration for its part is currently involved in developing
various alliances, based on a corporate approach, through bilateral
agreements and pragmatic action, the development of public-private
partnerships to support the feasibility of investment in new technology and
the promotion of environmentally-compatible industrial development,
directly activated by private sector businesses.
The issue of process governance is clearly highlighted by the
comparison between the US bottom-up and Europe’s top-down approach
to the ongoing adjustment process. Will the post-Kyoto process elicit
interest in the United States, the Asian countries and the poorest countries
for a multilateral agreement approach, by way of a strategy shared with the
United Nations (through the UNFCCC – United Nations Framework
Convention on Climate Change) that aims to define a joint responsibility
And Australia, which ratified the Kyoto Protocol at just about the time of the Bali
meeting.
22
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with differentiated obligations and burdens? If so, Europe will have
contributed to significant change. The adjustment process can indeed not
be separated from the role played by dedicated institutions, even
internationally. But it is precisely internationally that Europe risks in the
meantime losing credibility, for not having managed to restore order
within its own borders and for not having figured out how to put an
industrial development spin on environmental issues.
In other words, the European Union has to contend with two issues
at one and the same time, while not remaining anchored to old paradigms.
It must, first, put its own institutional house in order. That is, provide
Council with powers and a mandate regarding energy; set up a European
regulators coordination mechanism; and develop the control instruments
required to make a single market possible. Secondly, it must define not
only the role to be played by Europe in international negotiations but also
the basic tenets of an industrial strategy involving businesses and investors
in post-Kyoto developments. Time has really run out on unilateral, EUwide commitments to reduce GHG emissions, and this last aspect warrants
some further words of analysis.
Using its own unilateral commitment to promote the design of joint
responsibility and differentiated burdens, Europe has shown its leadership
capability in its very best light, with its wish to promote sustainable
development in the poorest countries. This vision, underpinned by the
need to promote integrated policies with respect to energy and the
environment has filled the vacuum created by the US administration’s lack
of interest in pollution issues; it has helped overcome the divide and
conquer policy in the US security of energy supply strategy, based on the
one hand on the ramping up of military relationships in the Middle East,
and on the other on bilateral negotiations, in Latin America and the Pacific,
with primary-source producer countries.
It is important that this action continue, strengthening the role of
international institutions, including financial ones, in order to launch both
the technology transfer process and coordinated support for the
development of the poorest countries. But once these political outcomes are
achieved, Europe will still have to contend with the issue of policy efficacy.
It is a known fact that the Kyoto Agreements’ contribution on this is quasinil. As regards instruments and policies, Europe risks making a serious
mistake if it does not broaden the spectrum of what it considers acceptable
ENERGY AND EUROPEAN INSTITUTIONS | 115
action along the lines of what the US administration, for example, has done
to develop cooperation among businesses.
Technological innovation appears to be the keystone in terms of
addressing and solving the problems of energy and environmental security
now facing the industrialised economies. Businesses’ contributions will
prove essential. Market instruments such as emissions trading, especially if
extended on a global scale, will no doubt prove important in the short and
medium term to price carbon emissions and force businesses to internalise
these negative externalities. But this approach has to be implemented in
conjunction with strategies to promote and facilitate long-term investment,
in order to activate the engine of industrial transformation and
development. This will require huge funds and cooperation between
enterprises, public and private sector and European and developing
countries. And it involves much more than the cap-and-tax mechanisms
devised by the Commission.
Environment, calling for focused technological development, is a
growth opportunity that Europe cannot neglect. And this is a road that
industrialised economies could in part travel together, cooperating in order
to allow countries such as China and India to accomplish the technological
shift demanded by the protection of our planet, and to help move the
poorest countries out of poverty. But to date there have been but occasional
signs of a shared awareness of these issues.
The crucial problem is that a rigorous and for the time being
unilateral (in terms of content) European strategy, neglectful of its impact
on corporate competitiveness, opens the door to industrial relocation
solutions favouring countries that do not yet have binding environmental
targets, such as China or India, and are far less efficient in complying with
environmental criteria. Their industrial processes, for the same goods,
generate more emissions than Europe’s. Consequently, taking the global
view that environmental issues necessarily require, this policy – very costly
for a number of European industries – may well lead to no progress
whatsoever in terms of goal attainment, and no containment of global
emissions.
In other words, the energy/environment package just launched by
the Commission, however careful in using objective and unchallengeable
indicators such as per capita GDP in computing national commitments,
seems to stem more from an administrative logic than from efforts aimed at
activating the engines of technological innovation in energy and industrial
116 | VALERIA TERMINI
renewal in Europe, by fostering partnerships for research, transfers of
technology, and the testing of new industrial models likely to get a boost
from environmental challenges.
Finally, in terms of policy efficiency, even if this costly and unilateral
effort on the part of the European Union were to be on target in 2020, and
assuming improbable zero growth for the rest of the world’s emissions, its
impact on global targets aimed at stabilising environmental pollution
growth and global warming, as uniformly computed by international
agencies and the United Nations’ experts, would be under 4%.
5.
Conclusions
The issue of European energy policy governance has become ever more
central, as a result of the emergency affecting security of supply of primary
energy sources and the environmental emergency of global warming
deriving from excessive GHG emissions. Speaking with one voice, the
European Union has managed to exercise leadership in sensitising the
planet to the Kyoto Agreements and in suggesting a method and a vision
based on multilateral agreements. But this has not been matched by
corresponding effectiveness and results at the policy level. For these to
materialise, the Union still requires institutions with powers regarding
energy.
The Union will have to strengthen its institutions if it wishes to move
beyond the contradictions that currently plague it and are in practice
jeopardising the construction of a single market. As a first stage in a
security of supply strategy, the Union has pushed market liberalisation and
opening, so as to construct a European energy market. But this
liberalisation and this opening up cannot elicit sufficient support from
those states that have had to bear the full burden of ensuring security of
energy supply for their citizens. This has led to diverging national policies,
as governments became involved in supporting, more or less explicitly,
their national champions. And this has also led to free-riding in
negotiations with producers. In short, this is a vicious circle that is
weakening the European Union’s international bargaining power.
On the other hand, only the awareness that a single market will
provide value added is likely to convince governments they should sign on
wholeheartedly to a European plan to open energy markets, convinced that
this single market will represent a positive externality for domestic markets
in terms of increased security. But to reach this point, Europe needs
ENERGY AND EUROPEAN INSTITUTIONS | 117
institutions to support and coordinate domestic market liberalisation, to
provide guarantees as to rules and stances to those utilities that will be
called upon to face up to competition and invest in the market.
Recent years have shown quite clearly how disappointing it is to
think that one can offset the institutional vacuum of a mandate-less Council
and a European regulator that is simply not there, simply by extending
inappropriately the missions and functions of the antitrust authority.
The second message is that the European Union, however significant
the role it has played in promoting and supporting internationally a
multilateral vision of energy policies and climate change, will not be able to
continue playing this role, if it hasn’t beforehand put its own house in
order. Nor will member states be in a position singly and separately to face
up to Asian competition, the growing demand of which is putting pressure
on the very same primary sources they use. European institutions will
therefore have to play an essential role over the next few years if they wish
to avoid having piecemeal interests prevail in energy policy.
However, institutions are a necessary but not sufficient precondition
for cooperation in the field of energy. The outcome so far shown by the
European Commission’s policies demonstrates that their focus remains far
removed from one target: that of starting up the engine of industrial
development, inter alia in the energy sector.
Technological innovation, and this is the third conclusion, appears to
be the keystone to address the issues of energy and environmental security
with which industrialised and developing countries alike now have to
contend. Business contributions will prove essential. Such is the approach
that underpins the bilateral negotiations between governments and
businesses that are at the heart of US policy. But it is also a road that
industrialised countries could travel under the aegis of a necessary form of
multilateralism, cooperating to allow countries such as China and India to
accomplish the technological shift required for the protection of our planet,
and to help the poorest countries pull out of poverty.
This is also a growth opportunity for industrialised countries – and
one that Europe can ill-afford to ignore.
118 | VALERIA TERMINI
References
European Commission (2007), An Energy Policy for Europe, DirectorateGeneral for Energy and Transport, Brussels, January.
European Environment Agency (EEA) (2008), Energy and Environment
Report 2008, European Environment Agency, Copenhagen, June
(http://www.eea.europa.eu/publications/eea_report_2008_6).
Gaddy, C.G. and B.W. Ickes (2002), Russia’s Virtual Economy, Brookings
Institutions Press, Washington, D.C.
International Energy Agency (IEA) (2008), World Energy Outlook 2008,
OECD/IEA, Paris (http://www.worldenergyoutlook.org/2008.asp).
Rigano, A.R. (2002), “La Banca d’Italia e il progetto ENSI: Fonti per la storia
dello sviluppo energetico italiano degli anni cinquanta nelle carte
dell’Archivio della Banca d’Italia”, Quaderni dell’Ufficio Ricerche
Storiche, No. 4, June.
Skinner, R. (2006), Strategies for Greater Energy Security and Resource Security,
Oxford Institute for Energy Studies, Oxford, June.
Stern, J. (2006), The Russian-Ukrainian gas crisis of January 2006, Oil, Gas &
Energy Law Intelligence (OGEL), Oxford Institute for Energy Studies,
Oxford.
Stern, J. (2007), Gas-OPEC: A distraction from important issues of Russian gas
supply to Europe, Oxford Institute for Energy Studies, Oxford,
February.
PART II
THE INTERNATIONAL PROJECTION
7. EUROPE ON THE INTERNATIONAL
SCENE: A UNION OF NECESSITY AFTER
A UNION OF CHOICE?
CESARE MERLINI
European foreign policy will only come into being when capitals
acknowledge that relinquishing jurisdiction to Brussels doesn’t weaken
them, but makes them stronger, because the policy shift increases the
influence of all EU States worldwide. (…) The European option - “make
law not war” - could however turn into a lie worthy of social
romanticism, if Europe’s security policy rules out a military component.
Ulrich Beck1
T
hus far the role of the European Union (formerly, the Community)
on the international scene has been largely passive, in the sense that
it has been less the outcome of policies or political will than the
consequence of its very existence. The EU has been a conspicuous and
expanding reality, an area of prosperity and the sum of important or at
least not irrelevant states. Moreover the Union has been an atypical player
in the world system, because of the implicit, irreversible peace among its
member states, and because of its unparalleled and unprecedented hybrid
of federal and intergovernmental institutions – a model possibly to be
copied in other contexts. The magnetic effect on neighbouring states has
been remarkable and has led to the view that the EU has so far exerted its
geopolitical influence mostly through enlargement, in particular with the
latest accession of ten plus two countries.
Ulrich Beck, Das kosmopolitische Blick oder: Krieg ist Frieden, Suhrkamp Vrelag,
Frankfurt aM, 2004.
1
120 |
EUROPE ON THE INTERNATIONAL SCENE | 121
With respect to enlargement to include Eastern European countries
formerly belonging to the Soviet empire or even the Soviet Union itself, it
may be noted, by the way, that it has taken place while the West has seen
its global presence and influence shrinking and/or declining. This applies
particularly to the Asian continent, with the unsuccessful wars the US has
fought in it, following the historical demise of the European empires. In
other words a sort of counter-cyclical Western expansion has been achieved
through the attractiveness of its institutions, above all the EU but also
NATO, rather than through the action of its armies.
The perception of the EU as an international player by its shear
existence, not only in economic terms (the euro, trade, competition law) but
also, at least potentially, in political terms is also gaining ground abroad.
Robert Kagan, for instance, an analyst not generally known for his softness
vis-à-vis the Europeans, who he famously said are from Venus while the
Americans are from Mars (Kagan, 2002), subsequently wrote that the
European Union is a “geopolitical miracle” that “in its own way, expresses a
pan-European national ambition to play a significant role in the world, channelling
German, French and British ambitions (…)” Kagan (2007). Former Italian
Foreign Minister D’Alema likes to recall a meeting he had, together with
two other European leaders, with Chinese President Hu Jintao, who told
them, “We are a great power that will be called upon (during the first half
of the 21st century) to manage Chinese-American bipolarism” – at which
point, realising he was addressing a group of Europeans, he added,
“Obviously, Europe will also be there,... if it is united” (D’Alema, 2007a).
To stay with the United States, the expectation that an integrated
Europe will take a more active role internationally is also remarkably high
in the public opinion. In this respect, data recently published by
Transatlantic Trends – an annual survey conducted by the German Marshall
Fund of the United States to measure broad public opinion in the United
States and 12 European countries – are worth noting: in 2009, 63% of
Americans surveyed have a positive view of the EU and seven out of ten
believe that its leadership in international affairs would be desirable. This is
only marginally down from the 77% who, being asked the same question in
2007 had answered “yes”, with 30% adding “very”, while only 16%
answered “no”.2 This apparent US “enthusiasm”, particularly high among
2
Transatlantic Trends (2009 and 2007), various tables.
122 | CESARE MERLINI
registered Democrats, has remained fairly stable over the last seven years
(and is consistently higher, by the way, than that shown by the British in
similar surveys).
In contrast with this passive, but relevant role, is the EU’s formal
foreign policy, which has been conducted prevalently with a technocratic
approach, drawing from mechanisms, almost as if the real world and its
power plays did not exist. The results have not been entirely negligible, as
demonstrated by the various small and medium-scale missions in the areas
of security and defence, and by the activity of the High Representative,
whether independently or jointly with the Ministers of member states, but
they have been marginal.
The saying currently goes that there has been a re-nationalisation of
various European policies over the last decade or two, including foreign
policy. However it would be hard to say that national initiatives and
strategies have achieved much more. Sarkozy’s activism has had limited
impact, except possibly for the second half of 2008, when France held the
rotating EU Presidency (in application of the Kagan paradigm of the
European ‘multiplier’ of national ambitions). The UK foreign policy seems
not to be at one of its highest points. Italy’s unsolicited mediations have not
met with success. Neither have, so far at least, the efforts of such groups as
the so-called EU-3 (the British, French and German foreign ministers with
or without the EU High Representative) or 5+1 (the five permanent
members of the UN Security Council plus Germany), both marking the
dominant diplomatic aspiration of re-unified Germany, i.e. of being
formally recognised again as a great power and consequently becoming a
permanent member of the UNSC – a prospect that seems to have become
more remote with the current US administration.
That said, the ambition for a shared, or at least coordinated,
capability in the fields of foreign affairs, international security and defence
is seldom denied openly and appears as a corollary to the more or less
sincere acknowledgement that the member states, even the big ones, taken
separately do not carry enough weight on the world scene – as another
current saying goes with little consistency with the previous one of renationalisation. Moreover European public opinion has predominantly
shown substantial support for a more active role by the Union in the world,
although consistency is once more limited when such support finds itself
associated with reluctance to shoulder diplomatic action with military or
broader security commitments and expenditure.
EUROPE ON THE INTERNATIONAL SCENE | 123
It is in this light that that the prospects of an enhanced role by the
European Union with its current size and borders and in the new
international context must be assessed – if they exist. The compromise
agreement grudgingly reached in 2007 was a substantial step back vis-à-vis
the draft Constitutional Treaty initially devised by the European
Convention (a more democratic forum, incidentally, than a diplomatic
conference), but the Lisbon Treaty, in which it was translated, has been
nevertheless seen as a framework for the EU institutions to resume
progress, particularly in the field of external action, for which a few more
tools are being made available. The external challenges that such
international action face and the internal constraints will be discussed
successively, followed by a suggested policy strategy and a succinct
analysis of the tools provided for by the Treaty.
1.
The international context
One important reason for Europe being more exposed to international
responsibilities is that the United States is less in control of both the general
situation and potential crises than it was a decade or two ago. The past
administration has left behind a number of legacies that weigh heavily on
the present one. Three are of direct relevance to the transatlantic
relationship more than others. The first is the encouragement given to
nationalism in general, and more specifically on our continent, when
promoting bilateral security agreements with countries of the so-called
‘New Europe’ and thus eliciting age-old attitudes and feelings that came
out as an obstacle to the draft Constitutional Treaty and later to the Lisbon
Treaty. The second is that much of the fallout from the G.W. Bush
administration’s policies in third areas is significantly greater for Europe
than it is for America: of the many possible examples, I shall only mention
the Middle-Eastern frustrations that help infiltration of immigrants by
fundamentalist Islamic terrorism and the exacerbation of relations with an
increasingly nationalistic Russia, such as to make it an even more difficult
interlocutor than it possibly would have been. The third negative legacy
concerns the weakening of the multilateral system, either of general
competence (the UN) or of a sectoral one (e.g. the Kyoto Protocol or the
International Criminal Court), that remains a European priority, at least in
principle.
At the end of 2008 the geo-strategic context featured an extreme
variety of threats and conflict modes, from the various civil wars underway
124 | CESARE MERLINI
despite US presence (as in Iraq and Afghanistan) or possibly in gestation
(as in Pakistan) to cases of hostility among states, from the continuing
nuclear proliferation challenges (by Iran and North Korea) to the revived
tensions between the US and Russia. The diffuse threat of terrorism
complemented all that, with its various motivations (ethnic, national or
religious) and manifestations (from guerrilla warfare on the edges of
military conflict to attacks exclusively targeting civilians, be they Muslim or
Western, through the ever more common resort to suicide fanatics). Some
of these crises seemed to be on the brink of a status shift from unresolved to
irresolvable, and not only in the Middle East. Add to that the abysmal state
of the American image around the globe, particularly in the Muslim world,
but also elsewhere (with only two exceptions, Israel and India, not without
significance).
Paradoxically, this state of affairs, which in some respects went
somewhat close to American impotence, came as result of a two-decade
period of solitude of the United States at very top of the global power
hierarchy after the end of the cold war and the ensuing sense of
omnipotence, which made the comparison with Rome at the apex of its
empire so popular among pundits and commentators and, at the same
time, so superficial – as I argued in my essay “The US Hegemony and the
Roman Analogy”, back in 2002 (Merlini, 2002).
In the eyes of most Europeans, the new administration, besides the
extraordinary initial popularity of President Obama, has started on the
right foot as far as foreign policy is concerned. The new commitment to
international institutions, the suggested ‘resetting’ of relations with
Moscow, the open hand offered to antagonistic powers such as Iran and
Syria, the less unconditional support for Israel, etcetera, all have brought
the guidelines of the US action internationally closer to the European
preferences. More importantly the Obama-Biden-Clinton team seems
consistently more inclined towards transatlantic cooperation, counting on
European support and sharing of decisions than their predecessors were.
This does not reduce the requirements for a more active and coherent
European contribution to crisis prevention and management in the
framework of the historically reduced Western influence, let alone
dominance. It rather makes it more imperative. At the same time, the
substantial foreign policy turn taken by the new administration since its
inception is unlikely to bring about visible fruits in resolving the various
above-mentioned critical situations in a short time. If anyone had any
EUROPE ON THE INTERNATIONAL SCENE | 125
illusions in this respect, there have been people in Tehran, Jerusalem,
Moscow and elsewhere who care to dispel them. Thus the risk is that of
substituting the past conflict of orientations between the sides of the
Atlantic with a conflict of expectations. The Europeans, who are under
severe budgetary and political constraints domestically, tend to wait for the
outcome of the US foreign policy changes and see whether they will
improve those many critical situations that are proliferating in the broad
arc that surrounds Europe from the East. The Americans now expect
prompt and sizable European cooperation in order to help such a positive
outcome to come about, lest to be disappointed and take unilateral
approaches back into consideration.
The above complex picture of actual or potential geo-political
instability has in fact been building up over the last two decades or more,
while until the summer of 2007 the geo-economic picture had been
consistently rosy and stable, despite a number of warnings voiced here and
there. Then came the subprime mortgage crisis to trigger a recession, which
is being discussed in other chapters of this collection of essays. Suffice it
here to express two considerations. First: ways to reduce the impact of the
global economic slowdown and to allow each country to come out of it
sooner rather than later have taken priority attention by all governments,
while the critical hot spots do not allow for much distraction. And second:
the global distribution of power will likely look different, once the
recession is over, to an extent that is not easy to predict at this stage, while
the conflicts and instabilities of the ‘wider’ Middle-Eastern area seem to be
only marginally affected by the contingent global economic troubles, as
they spring out of roots that are predominantly local, historical, ethnic and
religious.
It is in the light of all this that attention is now turned to the other
players on the international scene, and in particular to those that, contrary
to the United States, still ranking first but declining, rank second or third
but are rising, such as China and India, or have declined already (and more
than the US), such as Russia, which however still ranks as a major power
both because of the past legacy (nuclear weapons) and current leverage (oil
and gas). All these powers basically hold ambivalent views about the
situation – or at least this is the way it looks to us in the West. On the one
hand, they are aware that their current status has been the result of a longlasting economic expansion, mostly driven by the West and marked by a
high degree of global interdependence. The recent downturn, which has
rapidly spread from the West to significantly slow down their growth, has
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come as a confirmation of global interdependence. Now, geo-political
instability may entail additional obstacles to the global recovery, for one
reason or another.
On the other hand, the Chinese are not insensitive to the relative
decline of US power in the world, as their thinking remains well attuned to
balance of power, the dynamics of which appear to them to suggest a
return to a grandeur lost for centuries (see Hu Jintao’s confident prediction
to D’Alema); nor indeed are the Russians, whose nostalgia of a past
superpower status has more recent points of reference. Furthermore, both
countries detect with some satisfaction the dilemmas facing Western
policies, and primarily that of the US, torn between the imperatives of
fighting against terrorism and insurgency on the one hand, and the legacy
of supporting democracy and human rights on the other. In this respect the
Obama administration seems inclined to resort more to diplomacy than to
ideology, along the preferences of most capitals on this side of the Atlantic.
China is for Europe a very important partner, although more exclusively
for economic reasons than is true for the US. Russia is an even more
important partner, since geo-strategic motivations combine with economic
ones, as a consequence of geographical proximity.
India was able to reach a nuclear agreement with the G.W. Bush
administration, which was broadly deemed negative for the global nonproliferation regime, but which was to take the country out of the pariah
status it had suffered. Hence the high ranking of the US in Indian public
opinion, similar to the situation in Israel, as mentioned above. Moreover,
Indian nationalists were not disconsolate at the problems experienced by
the privileged relationship between the US and Pakistan, their hated archrival. They did not win, however, in the last elections, to the relief of
everyone, beginning with President Obama. A civil war in Pakistan, with
the Taliban involved and the control of a nuclear arsenal possibly at stake,
is a great regional concern hardly compatible with India’s aspirations to
resume economic growth and consequent broad power status.
Such a potential chain reaction in the South-Asian region affects
Europe in two respects. India is also an important economic partner,
although not as much so as China. Several European countries are engaged
in Afghanistan, not so much because of the size of the interests they have
there but because of the solidarity they felt for America after 9/11 and now
because the future of NATO, and more broadly the credibility of the West,
may be at stake. Consequently the potential fall-out of failure in
EUROPE ON THE INTERNATIONAL SCENE | 127
Afghanistan, let alone of an eventual Pakistani explosion (whatever
meaning this word may one day acquire) is of great concern to them.
However the leverage that even the major European states, let alone the
EU, have there is not remotely comparable with that of the US. Hence,
there appears a lack of adequate commitment in the eyes of some
Americans.
If we come to those critical situations that are high on the
transatlantic agenda and are at the same time geographically closer to
Europe, we find that the very proximity to the EU space becomes a decisive
factor. Cases in point are of course Turkey, Georgia and Ukraine. They are
seen by the United States as ‘border countries’, in the sense that the former
is key in the West’s relationship with Islam, and the latter two are key with
respect to Russia,. As a consequence the Americans believe that Europe
should continue in the longstanding and successful process of expanding
its area of intrinsic security and contemplate the inclusion also of these
countries sooner or later, in the conviction that the prospect will have a
stabilising effect by itself both regionally and domestically.
The Europeans find themselves in a bind. Most of them think they
have given enough in terms of inclusion, the cost of which has been higher
and higher, and tend to consider these cases – as several others around
them – as the object of their enhanced foreign policy, which however is
lacking. Even the intermediate step of including Georgia and Ukraine into
NATO, by the way, is seen with hostility, not so much because of the
Russian sensitivities, as many in the US suspect, but because the alliance
would end up being in serious jeopardy. Moreover, if further EU
enlargement has to be contemplated, other candidates, such as the Balkan
countries, seem to enjoy geographical priority and they are difficult
enough.
Different from what happens in relatively distant areas such Asia or
even the Middle East, the policy choices the Europeans make concerning
their ‘near abroad’ carry a more decisive weight, but such weight is often
connected with the perimeter of the common institutions rather than with
the existence of a common foreign policy. It may also be revealing that as
far as the external action in the economic domain is concerned, the EU’s
response to the recent global recession has been unsatisfactory in terms of
cohesion, but the crisis did generate a new application to join, that of
Iceland.
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2.
The Union’s Internal Context
Let us now turn our attention to within the EU and try to shed some light
on the obstacles preventing the shaping and implementation of a foreign
policy sufficiently active and common. First, nationalism has to be
mentioned, which has been seen as rising throughout the continent. Among
the 27 member states, various expressions and claims emerge on a daily
basis, including in the new members, egged on – as mentioned earlier – by
the two Bush presidencies. But even a country such as the Netherlands,
once a founding father and Europe’s champion, became inward-looking as
shown by the referendum on the Constitutional Treaty in 2004. In Belgium,
another traditionally pro-European country, there are two strands of
nationalisms that risk breaking up the country, its limited size
notwithstanding. We focus here however on two of the more important
and possibly paradigmatic cases, that of the United Kingdom and Poland.
British nationalism is aristocratic and decadent, born of a great
history made up of victories – some more those of others than its own –
which have led to the UK’s current formal status as a great power. But
there have been defeats as well, in some cases cleverly concealed, which led
to the demise of an Empire that once spanned from ocean to ocean.
External to Europe, Great Britain tends to take from integration what suits
its needs, with English pragmatism, and to throw spanners in the works of
the rest, to hinder progress when it is deemed to infringe on its sovereignty.
While it takes advantage of the past enshrined in its permanent seat on the
UN Security Council, it keenly views its role as the closest, although rarely
rewarded ally of the only superpower left. But it has tried also to be
forward-looking, with its flagship stance on the new seas of globalisation,
where the slower and more timorous ships of the rest of Europe’s fleet
follow in its wake. That made the UK even more affected by the economic
downturn and its currency more vulnerable without the euro shield. The
partly consequential dramatic weakening of the Brown government and
the likelihood of an eventual return of the conservatives to 10 Downing St,
with several euro-sceptics among them, suggest that this nationalism and
the related obstacles to European integration and joint action outside are
here to stay.
Polish nationalism, conversely, is less sophisticated and the product
of a history of defeats, often heroic, nurtured by a culture that is
prevalently romantic or religious or both. Located at the heart of the old
continent, Poland has forever been squeezed between major powers that
EUROPE ON THE INTERNATIONAL SCENE | 129
have treated it harshly – occasionally with the support, within the country,
of authoritarian, or religious or simply naïf circles. Too often Poland looks
at its past where it finds fodder for its frustrations and recriminations, both
domestic and international, under which it seems inclined to bury the
generous and forward-looking political class that accompanied the return
to democracy and the accession to the EU. The change sanctioned by the
2007 elections was a positive development, however. With time Poland,
which has resented the global recession less than the other Eastern
countries, will move closer to Europe, thanks also to lavish EU funding of
agriculture and infrastructure, the benefits of which public opinion has
begun to acknowledge. By the way, the experience of various previous
accessions shows that even culturally, assimilating participation in the
integrated system takes time. In the field of external action, EU relations
with Russia, a country that understandably touches on the nerves of the
Polish, have been under constant pressure from Warsaw and will remain a
test case.
After two countries at the periphery of the Union, let us turn to two
countries at its heart, beginning with France under the now consolidated
leadership of the new President, whose international activism has already
been hinted at. One however should not be misled by it. In fact, despite the
Gaullist heritage Sarkozy claims to be faithful to, his main role has been so
far one of reducing the very French specificity the Général was so proud to
have brought about. The return to the military structure of NATO is
probably the most evident example. As far as Europe is concerned, Sarkò
has to deal with the legacy of his predecessor, who wrought irreparable
harm to French leadership in it, from the Nice Summit to the call of a
referendum that for all practical purposes “a tué dans l’oeuf”, as the French
say for killing at the start, the Union’s Constitutional option. The 2004
rejection of the Constitutional Treaty was certainly very negative for the
Union, but France’s future position in Europe may also bear its mark in the
long run.
Something similar had happened exactly half a century earlier, with
the Assemblée Nationale’s “non” to the European Defence Community,
which not only killed the European army at its start, but also prevented the
founding of a community devised along French lines, modelled on its
institutions, that would have spoken French. Germany at the time was one
step down the ladder and the UK one step off the European system as it
was taking shape then. Later, with the Common Market, the Community
and subsequently the Union came to rely to a large extent on the Franco-
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German reconciliation then entente, joined first by Italy and Benelux, and
later by the subsequent entrants, including the UK. Over fifty years, in the
management of this so-called ‘axis’, Germany has basically stood for
European integration (and Atlantic solidarity) while France alternated
playing the other pole, and giving more or less free rein to its national
autonomy. Meanwhile, the Germans have fully come up that one step
down, and the British have, at least partly, come across that step off, and
this has changed France’s relative position. Perhaps voters in the French
referendum were not fully aware of this new situation.
Time will tell the long-term consequences of 2004, but I would tend to
think that Paris will have problems maintaining the Paris-Berlin axis with
the same division of labour as previously. In 2006, I wrote in an article that
the foreign policy of united Germany, the Union’s largest member state, “is
moving on a biga, the Roman two-horse chariot, where one horse is
European, and the other stands for the aspiration to become a de facto great
power, even without the de jure sanction of a permanent seat on the
Security Council” (Merlini, 2006, p. 1120). The Germans have now more
choice when it comes to deciding which horse to prod. The French,
conversely, while obviously still decisive, will have less leeway. It may be
fitting such perception the care the current occupant of the Elysée has taken
in mending relations with his partner on the other side of the Atlantic, to
balance its loss of weight vis-à-vis his partner on the side of the Rhine.
Possibly the German response to the French “no” to the referendum
that would have substantially reformed the institutions of the Union has
come this year with the ruling of the federal Constitutional Court, by which
the ratification of the Lisbon Treaty has been given a green light, but with
an accompanying chorus of conditions and provisions that will make the
future working of the Brussels machinery, let alone the famous “ever
closer” integration more problematic. Among other things this applies to
German participation in the development and conduct of common foreign
and security policy actions, especially when a military component is
involved, which is likely to happen frequently. Evaluations of the
Karlsruhe court ruling are still under way, but the suggestion that it comes
to express the rebirth of a German nationalism deserves some
consideration.
The description above of the context inside the Union is meant to
help us identify the national obstacles that stand in the way of Europe
having an active foreign policy. The absence of a common identity, it is
EUROPE ON THE INTERNATIONAL SCENE | 131
said, comes as a further drawback. Hence it might be appropriate to ask a
preliminary question: Does the EU today identify with Europe?
Geographically and in terms of image, the question has to a large extent
ceased to be one. As emphasised above, from the outside the Union is
broadly perceived as a potential state entity covering the continent, so
much so that it is surprising to foreigners that we, from the inside, should
not feel the same. The fact is that politically and domestically the question
still arises.
Internal advocates of autonomous national identities and interests are
more vocal than ever. Their voices are heard on two levels, principally: a)
in the defence of national interests within the Union’s common institutions,
the safeguard of which appears to be less of a priority (as if a zero sum
game were favoured over a positive sum game); and b) in the pursuit of
separate interests and preferences, proximities or distances vis-à-vis third
parties, independently of, or in contradiction to, the stance prevailing
among EU partners. “Les Etats restent au coeur du système international”
said Sarkozy, fully mirroring in this case the teachings of De Gaulle.3.
That view is widely shared. But it is not terribly new, one may say.
An earlier expected return of the nation state to the heart of the
international system occurred just after the end of the Cold War. Also at
that time there was a widespread perception of weak systemic ties, as a
consequence of the blocks’ demise. While this meant to some that the
Atlantic Alliance had lost its purpose and to others, on the contrary, that it
needed to change into a political community, to many it simply spelled the
return to full-fledged national sovereignty. European integration was
supposed to be one of the casualties, being sidelined by the fall of the Iron
Curtain and the consequent reunification of Germany. None of these
scenarios has materialised: NATO has survived as a military alliance (its
current problems not withstanding) and Europe has moved from the
European Monetary System to the euro, and from a Community of 12
members to a Union of 27 (same).
Today the problem is that the strenuous defence of separate interests
and preferences seems to have failed to a large extent to enhance the
national standing of separate countries in the world, as we have seen
earlier in this chapter, and the degree to which it has brought home sizable
3
Palais de l’Elysée, 27 August 2007.
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returns and specific gains is questionable. According to a number of
opinion polls in the EU member states, not only does a broad albeit variable
majority favour a common foreign policy, but both the general population
and European elites are voicing fairly consistent, if not uniform,
assessments and opinions on the issues of concern to them.4
Country-to-country differences remain, of course. A recent poll looks
at those differences that can be identified according to the location of the
considered country in Western or Central and Eastern Europe.5 It has to be
taken into account that, besides geography, the polled countries belonging
to the former group (France, Germany, Italy, the Netherlands, Portugal,
Spain and the UK) have been members of the EU for a longer time those of
the latter (Bulgaria, Poland, Romania and Slovakia). Well, President Obama
enjoys more favour and generates more expectations in the first group than
in the second one. That may be not surprising, in so far as the situation was
the opposite last year, when Bush was in the White House. More
unexpected is the fact that concerns about Russia seem to be sizably lower
in the neighbouring East than in the West.
Differences should not conceal similarities. Attitudes are in fact not
that distant as to the question of desirability of EU leadership in world
affairs: 76% in the Western part and 70% in Central and Eastern Europe.
Both sets of data are substantially higher than those concerning the
desirability of a US leadership: 56% and a meagre 44%, respectively. The
result concerning the European Union fits with the preference of three out
of four European respondents for a more active role of Brussels in the
present global economic turmoil, but is in a striking contradiction with the
low popularity of common institutions and the mounting ‘euroscepticism’
in most of the member states, including those traditionally in favour of
European integration, such as Italy. One is brought to draw the conclusion
that while the ‘European project’ is now on a decline, possibly irreversible,
the ‘need for Europe’ seems to be on the rise. To borrow from the language
currently used for the American wars in Asia, it may be said that a ‘Union
of choice’ is being replaced by a ‘Union of necessity’ in the way Europeans
perceive it.
4
See for instance Eurobarometer surveys and subsequent Transatlantic Trends.
5
See Transatlantic Trends (2009).
EUROPE ON THE INTERNATIONAL SCENE | 133
3.
Suggested guidelines for a non-marginal common foreign policy
The dimension, the economic weight and the historical legacy of Europe,
both as a collection of national states and as a common institutional body,
are such as to make the array of problems to be confronted when relating
with the rest of the world very ample indeed and full of challenges. Dealing
with all of them is beyond the scope and space of this chapter. Attention is
focused on the role and opportunities for the European Union in global
multilateralism and broadly speaking in a world in which a number of
systemic ties remain. The related political debate is the one between
ambitions and capabilities. The related cultural debate is one between
interests and values or between realism and idealism. The choice of the
multilateralist approach is made in the assumption that the consequent
priorities are the best outcome of both these debates, an assumption that I
will try to demonstrate.
Praising multilateralism may sound like an ‘idealistic’ refrain
somewhat passé these days, after the blows it suffered at the hands of
Bush’s unilateralism and in the face of the above-mentioned widespread
‘realistic’ assumption of the sovereign states dominating the world scene.
Realism does not necessarily view institutions and multilateral agreements
as flights from reality, but tends to assign them ancillary roles. The issue is
whether that suffices in the current international system. My point here is
that it does not. First of all, let us bear in mind that, despite the many
setbacks, multilateralism made some progress during the last decade: take
the case of the International Criminal Court or of the Kyoto Protocol,
possibly, the first steps of the kind achieved without or against
Washington’s wish. Now the Obama administration seems inclined to
resume constructively the dossiers of the global environment and of the
international law.
Secondly, a multilateral system appears to be the most promising
solution. It would be compatible on the one hand with the growing
interdependence that stems from globalisation, both in its heyday and in
the current economic slump, and on the other hand, with hierarchical
multipolarism, given the large numbers of very different states in the world
today. Multipolarism is not a strategy, but rather is a state of affairs. So is
hierarchy, which is not quite vertical enough to allow for empire, but
possibly not sufficiently horizontal either, so as to suggest a return to the
balance of power of yore, whose historical record for generating
international stability is not positive, anyway. Finally, multilateralism
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appears to be the most effective approach to address global problems with
a high degree of transnationality, starting with global warming.
Betting on multilateralism continues to be in Europe’s best interest.
Out of necessity, first, because the option of Europe turning into a power
that can stand in for a declining America, traditionally dear to the French,6
simply isn’t there. In fact, absent sufficiently strong ‘systemic ties’ between
them, the Europeans are weaker and more exposed to contradictions
between member states and the Union. But out of choice as well, i.e. out of
the vision that in a world so extraordinarily composite (with states and
international institutions, globalisation and localism, nuclear arms and
fanatic terrorism, unbridled secularism and the return of religion, etc.) a
new conceptual approach is required. The so-called ‘post-modern’
European governance system based on shared sovereignty may be a useful
precedent to help to identify such a new approach. The EU does not
harbour the ambition of projecting its power at large. The congenital lack of
what one may call ‘integrated chauvinism’ and the irreversible constraints
voluntarily accepted on continuing or resurgent nationalism by partly
submitting national sovereignty to common institutions should be turned
into an asset rather than a liability when dealing with the rest of the world.
In other words, even if we adopt the realistic assertion that the world game
is still largely a power game, the aforementioned European bet is
tantamount to changing the rules of the game while playing according to
them, for the time being.
Playing the game requires facing commitments and responsibilities.
That is why the strategy advocated here is bound to be civil and armed at
the same time. The residual influence of the cultural and social dimensions
of the European way of life must not be neglected, while economic
instruments such as aid, trade pressure and concessions, the single
currency, etc., must be put to use. Then the capability to help build states
by training people in the various branches of their institutional setup, must
See for example Pascal Bruckner: “The time has come to relieve our older AngloSaxon sister from the heavy burden that is bearing down on her. In the face of the
perils that loom (…) Europe must coordinate its own strategic capabilities and
provide itself with the military power required to obviate ever more obvious
American insufficiencies”. See “Non contate sull’America”, Sunday Edition of Il
Sole-24 ore, 14 October 2007.
6
EUROPE ON THE INTERNATIONAL SCENE | 135
be enhanced. In other words, first and foremost, ‘soft power’. However,
effective international policy on the part of the Europeans should not
hesitate to resort to the use of force – military or police manpower – in the
framework of broader international institutions, insofar as possible, but
also, whenever necessary, in lieu of or in addition to them.
The multilateralist method is therefore to be applied with conviction
as well as pragmatism in order to pursue the primary goals of high-profile
policies to further Europe’s common interests. When looking for the
necessary associates in this venture, attention obviously turns first to the
United States, all the more so with the Obama administration. The current
debate among the foreign policy community in Washington shows a
substantial return to the traditional dialectics between idealism and
realism, as illustrated also by some repositioning of think-tanks.
Multilateralism is in the picture of both schools of thought, albeit in a
different scale of priority.7 Both schools contemplate transatlantic
cooperation in dealing with either crisis situations (such as the wider
Middle East) and systemic problems (such as global warming), although
possibly in somewhat different terms, again. Hence the need for Europeans
to interact with both.
An area of apparent overlapping between the two approaches is the
idea of promoting a League of Democracies as a Western strategy, a
proposal that may yet elicit bi-partisan support in the US. Caution is
advisable here because it forces us to divide those countries whose
cooperation is needed by the West between ‘us’ and ‘them’ (Where does
that leave Egypt, for instance, or Saudi Arabia or Pakistan? What about
Russia? or China?). Moreover, by advocating a sort of ‘ideological
multilateralism’, we risk undermining institutional multilateralism (the
UN, in particular) as well as functional multilateralism (the G8, G20 or
whatever Gs, including the newly contemplated G2). The banner of
democracy should be substituted with that of the rule of law. This means
supporting and defending human rights, helping the adoption and the
implementation of domestic laws that are compatible with them both in the
established partner countries and in the failed states we are trying to put
back on their feet. Electoral democracy is the last chapter in the process, as
history teaches us. Rule of law also means further developing the systemic
7
As an outstanding example of the multilateralist school, see Talbott (2009).
136 | CESARE MERLINI
value of global justice, of properly legitimated rights of international
institutions to interfere in unacceptable situations, and the like.
America is certainly not foreign either culturally or historically to this
approach. Thus the partnership with the US in pursuing it has great
potentials, besides being necessary. Things are more difficult with others.
Let’s limit ourselves to the main powers already mentioned. Europe’s
interdependence with China, India and Russia has been systemically
growing and it may turn out to be even higher after the economic recession.
Thus policies vis-à-vis these countries, whether initiated separately by
member states or coordinated within the Union, are inevitably determined
by the pursuit of interests involved in this interdependence. At the same
time the limitations, conditions and ambiguities of these countries are well
known when dealing with systemic solutions such as treaties or institutions
and what has become fashionable to call global governance. In other words,
their reliability as stakeholders in the global corporation is limited, to use
business terminology. The effort to involve them should not be abandoned,
however, beginning with culture (current multilateralism is to a large
extent a Western concept that must adapted so that it can be shared by
other civilisations) and ending with interests (multilateralism implies
constraints for the West as well as for the rest of the world and it can
provide stability to global interdependence).
Islam is an even more difficult interlocutor. There are Muslim
countries and countries with a strong Muslim presence, often divided on all
issues save for anti-Israeli rhetoric. In recent years there has been a decline
in the power and influence formerly wielded by Arabs, to the benefit of the
Shiites. Moreover fundamentalists often have the upper hand over
secularists. Neither development is in Europe’s best interest and its strategy
should aim to reverse both. Hence a consistent initiative aiming to elicit
regional multilateralism from the rubble of the Middle East could reflect
positively on the strengthening of the Arabs and the secularists. Israel, had
it preserved some of Shimon Peres’ past vision, could perhaps understand
that this would be in its best interest as well. For the time being, however,
the Jewish state has chosen to fight almost exclusively for its own strength,
including territorial expansion, relying on the spirit of the Bible and a lay,
armed Realpolitik.
The Europeans should join what appears a new policy by the Obama
administration aimed at helping Israel to redirect its role towards working
for a secure and equitable order in the area. Not without ambiguities, they
EUROPE ON THE INTERNATIONAL SCENE | 137
seem to be in favour of a regional arrangement but know that it is basically
up to Washington to call the shots. That recognition should be reciprocated
by the US accepting that their allies on this side of the Atlantic have a
decisive word to say in dealing with Moscow and on the issue of whether
or not to further expand NATO, let alone the EU.
4.
The instruments for the EU to achieve a high-profile foreign
policy
Finally, let us briefly recall the main provisions of the Lisbon Treaty (TEU)
regarding Europe’s foreign and security policy.8
Under Article 1, para. 3 of the TEU, “the Union shall replace and
succeed the European Community” and “the EU shall have legal
personality” (Article 47), which means it shall have the ability to negotiate
and sign in its name international agreements of a binding nature for its
institutions and member states.
A permanent President of the European Council, elected by qualified
majority for a two-and-a-half year term that is renewable once, is
contemplated (Article 15). The President’s duties include ensuring the
external representation of the Union for matters relative to the Common
Foreign and Security Policy, alongside the High Representative (see below).
The intent is obviously that of conferring the continuity and consistency not
provided by the current six-month rotating presidency, especially in the
field of external relations.
The other innovation is the High Representative for the Union in
Foreign Affairs and Security Policy (Article 18), to take on the roles,
competences and resources of the High Representative for CFSP and those
of the Commissioner for External Relations (and therefore to have specific
funding in the budget). Nominated by the European Council, ruling by
qualified majority, with the agreement of the President of the Commission,
he/she shall be entrusted with directing the Union’s foreign, security and
defence policy and with contributing, through his/her proposals, to its
implementation in his/her capacity as representative of the External
8 For these comments on CFSP and ESDP, I have availed myself of the analysis of
the Lisbon Intergovernmental Conference drawn up by Michele Comelli (IAI),
Trattato di riforma e politica estera e di sicurezza europea: che cosa cambia?, International
Affairs Division, Italian Senate, October 2007.
138 | CESARE MERLINI
Relations Council (now independent from the General Affairs Council)
which he/she shall chair. His competences include coordinating the EU’s
existing policies and bodies, taking political initiative, implementing crisis
management and external representation.
Finally there is the European External Action Service (Article 27) to be
adopted by the Council, following a proposal by the High Representative.
Made up of Council and Commission staff as well as staff on secondment
from national diplomatic services, this unit shall operate in close
cooperation with the latter, with possible conflicts of competence looming
on the horizon. The Lisbon Treaty, for that matter, does not specify
deliberately the organisation and operation of the Service, to be finalised by
Council decision on the basis of proposals put forth by the future High
Representative. What will also have to be decided is who will chair the
Political and Security Committee (PSC, also known by its French acronym,
COPS), an existing body in charge of monitoring international
developments, formulating opinions for the Council and exercising
political control and strategic direction in Union peacekeeping operations.
Let us turn to the Lisbon Treaty clauses pertaining to European
Security and Defence Policies (ESDP).
1) There are, first of all, a number of solidarity-focused provisions,
including reciprocal defence. This means that “if a member state is a victim
of armed aggression on its territory, the other member states shall have
towards it an obligation of aid and assistance by all the means in their
power, in accordance with Article 51 of the UN Charter (Article 42, para. 3
of TEU). This text is similar to Article 5 of the North Atlantic Treaty, the
‘compliance’ with NATO obligations being for that matter explained a bit
further down in the text. The obligation is extended to traditionally
“neutral” countries, which showed gratitude by having the text specify that
“this shall not prejudice the specific character of the Security and Defence
policy of certain member states” (a good exercise of ambiguity). Another
solidarity-focused provision of the Treaty on the Functioning of the
European Union (TFU) mentions measures to be taken should a member
state suffer a terrorist attack or a natural or man-made disaster. There is
one caveat, however: the provision that states that action shall be joint and
bring to bear all available means, including military, will not apply in the
event of anti-terrorist operations outside the EU.
2) And then there is another provision (Article 42 TEU) that was
actually implemented ahead of the failed ratification of the Constitutional
EUROPE ON THE INTERNATIONAL SCENE | 139
Treaty now replaced by the Lisbon Treaty. It refers to the European
Defence Agency, set up as CFSP action in July 2004, in order to identify and
if necessary implement all measures likely to strengthen the defence
sector’s industrial and technological base (the potentially larger part of the
remit) and contribute to the definition of a European armaments policy.
3) Finally all provisions relative to Enhanced Cooperation have been
taken on board almost in their entirety. The one single exception – not
marginal – is that the exclusion of initiatives with military or defence sector
implications has been removed. This is due to the fact that it is precisely in
this sector that the Lisbon Treaty says that member states with adequate
military capabilities and the desire to enter into more binding commitments
in this field may set up among themselves a Permanent Structured
Cooperation (Article 46), formally open to all, with the purpose of
organising clusters of national and multinational forces, developing
equipment programmes in the framework of the EDA, and achieving
agreed spending and investment targets. In contrast to Enhanced
Cooperation, which requires the participation of at least one-third of the
member states, no floor has been set here. But more importantly, decisions
are taken by qualified majority, which waives the general principle
requiring unanimity in security and defence policy matters.
All these instruments, the potential impact of which is not negligible,
have been tacked on to the existing base of those devised for the CFSP and
the ESDP, both in terms of declarations, official procedures, common
action, etc., and in terms of joint operations such as the several ongoing
civilian operations and the one military (EUFOR Althea, in Bosnia).9 These
instruments have been used to implement what was called, in the
introduction, the low-profile common foreign policy so far performed by
the EU. In shifting from the Constitutional draft, the Lisbon Treaty has not
undergone any major mutilation in this respect, if one discounts symbols –
the flag, the ‘foreign minister’, etc. – ideal targets of nationalistic
reservations.
Before closing, I would like to mention briefly the CFSP’s younger
sister, the European Neighbourhood Policy (ENP), which has mainly
stayed under the Commission’s jurisdiction. It is a little sister indeed, but
not one to be underestimated, as it connects almost without separation with
9
For a review and closer examination, see Bonvicini & Regelsberger (2007, p. 261).
140 | CESARE MERLINI
the CFSP’s more difficult challenges (Russia, the Middle East, Africa).
Moreover it deals with illegal immigration, possibly the most difficult issue
in the area of justice and home affairs, and with enlargement, i.e. the
problem of the Union borders, the political relevance of which was
discussed before. Thus ENP appears squeezed, almost asphyxiated, on the
one side by the problem of Mediterranean cooperation including the hot
issue of Palestine, and on the other by the problem of the inflow of
migrants. A finally further enlargement looms over most attempts of the
ENP to establish more or less special partnerships with this or that
‘neighbour’.
In conclusion, once the remaining dominant unanimity rule is taken
into account, the ‘technical’ limitations to the achievement of an ambitious
foreign policy on the part of the Union remain in the Lisbon Treaty. These
limitations do not pose insurmountable obstacles, however, if a strategy is
adopted and the appropriate instruments to implement it are defined. Of
course, all depends on the famous ‘political will’.
References
Beck, U. (2004), Das kosmopolitische Blick oder: Krieg ist Frieden, Frankfurt aM:
Suhrkamp Verlag.
Bonvicini, G. and E. Regelsberger (2007), “Growing without a strategy?”,
The International Spectator, Vol. 42, No. 2.
Comelli, M. (2007), Trattato di riforma e politica estera e di sicurezza europea: che
cosa cambia?, International Affairs Division, Italian Senate, October.
D’Alema, M. (2007a), “Relancer l’Europe. Les responsabilités des
gouvernements, les enjeux pour la Gauche”, speech by Minister
D’Alema at the Gauche Reformiste européenne Conference, Brussels,
12 February.
Kagan, R. (2002), “Power and Weakness: Why the United States and
Europe see the world differently”, Policy Review, No. 113, June/July.
Kagan, R. (2007), “End of Dreams, Return to History”, Policy Review, No.
144, August/September.
Merlini, C. (2002), “The US Hegemony and the Roman Analogy”, The
International Spectator, Vol. 37, No. 3, July-September.
Merlini, C. (2006), ”Un nuovo ruolo internazionale per l’Europa”, in Il
Mulino, No. 6.
EUROPE ON THE INTERNATIONAL SCENE | 141
Sarkozy, N. (2007), Speech of President N. Sarkozy at the Conference of
Ambassadors, Paris, Palais de l’Elisée, 27 August.
Talbott, S. (2009), The Great Experiment: The Story of Ancient Empires, Modern
States, and the Quest for a Global Nation, New York: Simon & Shuster.
Transatlantic Trends (2007 and 2009), German Marshall Fund of the United
States (http://www.gmfus.org/trends/index.html).
8. THE ENLARGEMENT OF THE
EUROPEAN UNION
ROCCO A. CANGELOSI & FERDINANDO SALLEO
T
he institutional standstill that followed the referendums in France
and the Netherlands also shelved the enlargement of the European
Union to the Western Balkans and Turkey, causing a temporary halt
in a process that had completed a number of stages and aroused
considerable expectations. The formal reason that brought the process to a
halt was the pause for reflection Europe granted itself in order to reconsider its configuration and overcome the stumbling block of the
interrupted ratification process.
1.
European enlargement and vision
In addition to this standstill on the fate of the Treaty, the postponement of
new admission procedures seems to be closely connected to the dilemmas
that institutional review and enlargement policy have spawned for the
Union and its members. The first dilemma hinges on what kind of Europe
can realistically be built and managed with more members than the current
27, with new candidates that are unlike either the core Union countries or
the elusive ‘European average’ – even more unlike those admitted in the
so-called 10+2 enlargement of 2004 and 2007. The second dilemma, which
stems from the first, relates to what kind of Europe can be proposed to
candidates when accession negotiations resume. As European citizens
show increasing awareness of future Union developments, public debate
has been marked by a level of popular political participation that is higher
than that regarding government decisions.
In fact, both conceptually and more importantly politically, the
referendums brought home to European governments two long-avoided or
talked-away truths. Firstly, as is particularly the case in foreign policy
when the feared or real consequences for citizens of important political
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THE ENLARGEMENT OF THE EUROPEAN UNION | 143
decisions are under consideration, the issue of admitting new member
states to the Union confirmed the rule that sooner or later, governments
have to face up to public opinion and the deep-rooted and often
unexpressed feelings prevalent in any given country.
Similarly, debates on institutions and Union enlargement also show
that to some extent the future of Europe is burdened by the anticipation of
a looming, continually postponed ‘hour of truth’, which signals a need to
emerge at long last from the ambiguities skilfully juggled by governments
and diplomats alike. The continuing differences are basically between two
schools of thought: the original vision of a political Europe and the much
less innovative one of Europe-as-a-market, or a free trade area. Although
borders have always been somewhat unclear, there has always been a great
political and conceptual distance between the two major camps –
integrationists and minimalists – not to mention the many undeclared
intermediate positions.
Although attitudes to enlargement have often been dictated by
special relations to this or that candidate country, or by alignment
considerations, enlargement advocates have always had the minimalists on
their side, whereas traditional supporters of integration and the political
model have always viewed with considerable perplexity the potential
consequences of dishomogeneity on the nature of the Europe they were
building: there is, intuitively, a reverse relationship between the breadth of
the European Community and the degree of integration between member
states. Community, and subsequently Union enlargement has from the
outset had two main terms of reference: on the one hand, completing the
founding fathers’ European design – political and institutional and not
simply economic – and, on the other, attempting to achieve convergence
and cohesion between diverse countries, proud of their history and jealous
of their identity but willing to move rationally towards forms of shared
sovereignty. These ideals dictated the principle according to which the
deepening and widening of Europe should proceed in parallel. The
principle is still to be found among the pre-requisites to European
enlargement alongside the so-called ‘criteria’ for aspiring members.
Although at first sight redolent of a political oxymoron, the close link
between widening and deepening was designed and understood as a
hendiadys, a two-for-one, as the belief that the two approaches would
strengthen one another and make a robust and harmonious European
construction possible.
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Europe has gradually grown from its initial area, improperly termed
‘Carolingian’, to cover a vast region extending from the Atlantic to the Elbe
and to Thessalonica. In the process it succeeded in digesting both a fair
number of incongruities in its common institutions and significant legal,
political and economic differences between members. The European
Community’s enlargement process was thus moving ahead according to an
internal logic based on radically geo-political assumptions of 1989, when
European scenarios and global balance were radically transformed by the
collapse of the Berlin wall and the end of the cold war. The implosion of the
Soviet Union revived an ancient idealistic drive for a Europe that was ‘one
and free’, to be established in a continental area sharing freedom,
democracy and progress. This political premise triggered a process which,
despite a general awareness of the objective difficulties involved, drove the
European Union towards the East and the Baltic Sea as soon as continental
‘re-unification’ became possible, as signalled by the unification of Germany
within a European and Atlantic process and the return to Europe of
peoples who had been kept away from the heart of the civilisation to which
they felt they belonged – first by century-old events and subsequently by
Soviet domination.
The fact that countries subjected for almost 50 years to Soviet
domination and the straitjacket of centrally-planned economies were
actually able to restore representative democracy, the rule of law and the
protection of human rights and market economics were to a large extent
made possible by the support provided to their political and economic reconstruction – first by the promise of membership, and subsequently by
Europe’s concrete assistance as they returned to the fold. But the experience
was not equally positive for all concerned, which explains why further
enlargement is a contentious political issue in both new and old member
states, with criticism ranging from the rational to the visceral, from
nostalgia for the greater cohesion of the past and contempt for the red tape
and slowness of Brussels’ officialdom, to the revival of ancestral diffidence
vis-à-vis outsiders, and the nationalist and populist drives that have
resurfaced on the extreme political fringes of various countries under new,
often irrational and xenophobic guises.
2.
Recent admissions and new candidates
With the successful admission of neighbouring countries from north-west
Europe and the Mediterranean, the Union accepted into the fold European
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countries sufficiently similar to the founding members to be subsequently
absorbed into the European institutions – at varying speeds and intensities
according to the political, social and economic specificities of each new
partner – but with an approach marked by realism and cooperation.1
Coming from state-party regimes, command economies and statecontrolled production systems, they found it a challenge to reconstruct civil
societies, democratic and pluralist political systems with Western-style
parties and unions, public jurisdiction and administration, human rights
and environmental protection. Economically, they were as different from
the rest of Europe as they were politically and socially. While the Union’s
surface area and population have grown by about one-third with the
admission of Central and Eastern European countries, its GDP has
increased by only about 5%, and per capita income in the enlarged Union
has fallen by around 18%. These figures show that among the governments
and public of the ‘old’ Union, the ethical and political aspirations that
drove enlargement outweighed all considerations of national selfishness
and accounts-based resentment. These resurfaced with a vengeance in the
two referendums and are paradoxically also emerging in the more recently
admitted member states with regard to new candidates.
Central and Eastern Europe presents a diverse and varied picture, in
which commendable and laborious progress has not been linear. Initially
the larger countries, with national income levels that stood at around 40%
of European averages, recorded faster growth rates than the older Union
members – and (with the exception of Hungary) also showed acceptable
macroeconomic outcomes and positive structural adjustment, in
conjunction however with high unemployment rates (above 15% in Poland
and Slovakia) – and attracted significant flows of foreign direct investment
(Dlouhy & Emmott, 2006).
While some new members achieved clear political and economic
progress, the larger countries’ initial economic progress was not matched
by overall stability in the political structures of their recent democracies: in
actual fact, the establishment of post-communist public order appears to
have made both citizens and domestic political systems prone to
widespread restlessness that has at times erupted into loud protests,
rocking local political systems. Instability has already raised issues of
1
See Nugent (2007) for the enlargement sequence.
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governability in many of the Union’s more recent members and if
uncontained by systematic dialogue, may well worsen these countries’
general and specific economic vulnerabilities and whittle down the
comparative advantages (low labour costs, high levels of technical
education, young executives) which the Central and Eastern European
countries have so far used to boost exports and attract investment from
other, offshore Union members. Today there are fears that the inflows of
foreign currency that bolstered public accounts may dry up, leading to
major financial imbalances.
Following the adaptation period heralded by the introduction of
democratic institutions, signs of a revival of nationalism and populism are
now visible in several countries, which can only be considered as a retreat
from European ideals. By the same token, the fragilities and uncertainties
of several Central and Eastern European countries may make it difficult for
them to stay the course of the progressively stringent rules for economic
and fiscal policy on which the development of the European process and
convergence of member states hinge.
In other words, after a promising start, the EU’s main new members’
convergence with the mainstream is now faltering. The picture today is
very different from that surrounding the entry of Central and Eastern
European countries, due to the no doubt overly simplistic expectations of
European public opinion and governments. The belief was that
membership in the Union would stimulate a linear political, economic and
social process with interdependent effects and beneficial outcomes for the
various components of each new member’s society. The process was
actually posited somewhat abstractly as a kind of paradigm for
forthcoming admissions – currently in abeyance – but evidence drawn from
the experience of recently admitted members sheds doubt on its validity.
Consequently, insofar as new candidates are similar to recently admitted
members, decisions concerning their entry and the conditions to be
attached to accession agreements will also be scrutinised on the basis of
lessons learnt from the larger countries in the 2004 batch, filtering out
external factors and the impact of the global economic situation in assessing
their respective results and progress.
Although the various enlargement negotiations have so far been
formally framed on the basis of considerations specific to each case, it is
from a general political standpoint that Europe must contend with a series
of decisions on enlargement that affect its whole edifice. In actual fact, as a
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result of the momentum built up with the 2004-07 big bang, the approach
to future enlargements to the Western Balkans and Turkey has already
been sketched out, despite underlying controversy, currently expressed in
stronger terms and more openly than before. The generous idealism
underpinning such decisions failed to take into account that recent
experience has shown the need to base the process on a thorough
assessment of actual circumstance; in addition, the Union’s growing size
has gradually begun to tell on its shaky structures, already in need of an
overhaul if they are to provide effective governance for the current
membership of 27. In any case, voters in current member states will need to
be convinced of the desirability of further enlargements. In the meantime,
momentum has clearly waned as the constitutional standstill has halted the
enlargement process and forced Europeans to be more realistic in assessing
the gist of the venture, i.e. which Europe do they want and what kind of
geographical, economic, political, cultural and social configuration would
best suit their goal. Conversely, should the minimalist approach win out,
European construction will perhaps require adaptation to accommodate
future enlargements.
3.
The Western Balkans
Problems related to Europe’s external relations and security are among the
most pressing issues concerning the enlargements temporarily on hold.
First and foremost among these is the stabilisation of the Balkan region,
which occupies a geopolitical position of great strategic significance at the
very border of the Union. The Western Balkans, which encompass
Macedonia, Serbia, Albania, Montenegro, Bosnia-Herzegovina, Kosovo (the
latter two having a hybrid state structure) and Croatia, which is close to
concluding its own negotiations and is a different case, occupy a territory
that is wedged deep into the Union and, as far as we are directly
concerned, contiguous to Italy, from which it is separated by a narrow
stretch of sea. There is no need to stress how important the stability,
security and prosperity of this region is for Europe (and particularly for
Italy). Mindful of the recent post-Yugoslav wars and their effect on Europe,
one needs to be aware of how porous the borders separating the Western
Balkans from the Union are – particularly with the free circulation of
people that applies in the contiguous area of the Union under the Schengen
agreement. We also need to be aware in general terms of the potential
‘contagion’ of political instability and insecurity that can, through
metaphorical osmosis, transfer problems across borders just as stability can
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sometimes channel success. The Western Balkans are actually an
historically and ethnically diverse region, made up of countries that have
difficult relations with each other, most of which are small and unstable,
imbued with nationalism – even sub-ethnic nationalism. They are still
wounded by the memory of a recent bloody past and worried by the multiethnic make-up of the region and the national and religious minorities it
has harboured for centuries – the Islamic presence is a case in point. Their
institutions are often untested and their political structures fragile; there is
no reliable rule of law or protection of civil rights, internal security is shaky
and their economic dimensions are far from optimal. Their economies are
perhaps not even viable because of fragmentation, as illustrated by
inadequate, incomplete and un-integrated infrastructures. Finally, they
have high unemployment and low per capita income, even compared with
the rest of the Balkans.
The most important of the region’s countries, Serbia, has also fallen
prey to nationalism. It is economically backward, politically divided and in
addition still entangled in a contentious relationship with the Tribunal
established by the United Nations in The Hague to judge crimes committed
in the post-Yugoslav war, which has been demanding that Belgrade hand
over the Bosnian Serb criminals to be brought to justice. Most of all, it is in
the throes of political upheaval at the idea of losing Kosovo, that ‘cradle of
the Serb nation’, an inevitable territorial mutilation that it cannot bring
itself to accept.
Bosnia – which to all intents and purposes is divided between a Serb
‘republic’ and a Croat-Muslim ‘federation’ – and Kosovo are still under
international protection with a significant military and administrative
European and NATO presence, which has so far prevented worst-case
scenarios. Kosovo is also the focus of political disputes that led to
protracted arguments within the United Nations on the prospects and
terms of its separation from Serbia. The United States has recognised an
independent Kosovo as did many – not all – European countries despite
hesitation prompted both by fears of a chain reaction throughout the
former Yugoslav region and by national minority restlessness in Romania,
Slovakia and Hungary. Russia does not recognise Kosovo’s independence,
believing it will establish a precedent for restless nationalities within its
own borders, particularly in Chechnya, and has hit back in the separatist
regions of Georgia, i.e. Abkhazia and South Ossetia. In practice, Russia’s
veto has led to a deadlock that compelled the Kosovars to declare
independence unilaterally. An international group of experts has drawn up
THE ENLARGEMENT OF THE EUROPEAN UNION | 149
a ‘European’ roadmap bringing Kosovo and the whole region closer to the
Union, which includes guarantees of admission subject to the attainment of
political, legal and economic goals and the protection of the Serb minority,
but makes the prospect of entry into Europe an outcome applicable to the
Balkan region as a whole, at the end of a long-term process.
Can Europe whole-heartedly welcome into its midst and absorb
within an acceptable timeframe a group of peoples and societies so foreign,
complex and dangerous and at the same time so close geographically? Will
the citizens of the prosperous and distant North accept these new and, for
them, incomprehensible and rowdy ‘new Europeans’? Will it be possible to
make room for them within common institutions geared to achieving the
integration called for by the pro-Europeans, or should one devise some
other compromise and pay the price in terms of European political
cohesiveness and institutional progress? Will this not deal a final blow to
the principle of deepening as a condition of widening? On the other hand,
all governments are aware of the dangers that continuing instability in the
Western Balkans poses for the Union’s equilibrium and international role.
They know that matters may worsen further if the Union rejects these
countries and that there are in any event real risks of deterioration that may
go as far as the re-eruption of only recently quelled local conflicts. The
insecurity and political unrest of the 1990s, the horror of the post-Yugoslav
wars, and the massacres and repressions committed at the Union’s borders
are still alive in our collective memory. Large segments of European public
opinion as well as political leaders and decision-makers are now
wondering what methods could be adopted, how much time would be
required and what kind of Union status could be conceivable for these
countries, and which compromise solutions could realistically be advanced
without endangering the pursuit of Europe’s grand design. The time factor
that appears to dominate possible developments in the Western Balkans
inherently and strongly defers the basic dilemmas of enlargement: it may
actually turn into a factor for stability over and beyond current issues of
Union development, as well as a major obstacle to much-needed
clarification between two basic visions of Europe.
4.
Turkey
Security of the Union’s Eastern borders leads us to the complex issue of
Turkey, NATO’s Anatolian bulwark, abutting onto the Near and Middle
East countries, the Caucasus and Central Asia, while directly bordering
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Iran, Iraq and Syria. Looking at Turkey’s geopolitical position recalls the
opposing arguments that have always been advanced with regard to
Ankara’s entry into Europe. While it is natural for a political and military
alliance to have a common border with potential adversaries, it is much less
so for an innovative political and economic union, an integrated society
designed with the special features and purpose the community of
European peoples are committed to developing.
Several contradictions are inherent in Turkey’s current political and
cultural situation: a Muslim country with the history and tradition of a
great power, with a capable establishment, Turkey has made considerable
efforts to adapt to the Copenhagen criteria and implement the civil
liberties, human rights and transparency provisions the Union requires its
candidates to embody in their laws and everyday practice, although much
remains to be done.
It is true that admitting Turkey would show the Islamic world that
Europe is not an exclusively Christian club and is open to peoples of all
religions and cultures. It is equally true that Turkey is also a political and
cultural bulwark against radical Arab Islam and a concrete demonstration
of the viability of a secular and democratic Muslim state, although its
Kemalist secularism is guaranteed by the not particularly democratic
supervision exercised by the military high command over Ankara’s civilian
power, which recent elections have clearly handed over to an Islaminspired party. In addition, from a geopolitical standpoint, should the
Union extend its borders to the Near East, the most unstable and turbulent
area of the Mediterranean, it would find itself directly involved in the said
area’s endemic crises and regional conflicts, which are not just territorial
and political, but also economic – relating as they do to energy and water
supply – as well as ethnic and cultural. If Europe were to admit Turkey and
extend to the conflicting states’ borders, it would somehow become a party
to matters there, and in so doing lose its ability to act as an intermediary
and broker of agreements, a role it rightly aspires to and which in practice
it has so far been denied.
Another point to bear in mind is the regional perspective as seen
through Turkish eyes, even disregarding traditional ‘pan-Turkic’
aspirations towards Central Asia. Turkish pride often spills over into
nationalism, as demonstrated by recurring and bitter arguments on the
long-standing issue of the Armenian genocide perpetrated by the Ottomans
and to date obstinately denied by Ankara. Furthermore, a much more
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topical issue, that of the Kurds, has recently acquired a higher profile in
Turkey’s international political and military stance, as well as in domestic
policy, with threats of military intervention to destroy Kurdish terrorist
bases located in the north-eastern provinces of Iraq (and actual raids took
place), a prospect that has aroused deep concern in Washington as well,
insofar as it could lead to Mesopotamian Balkanisation. For although Iraq’s
possible disintegration conversely highlights the relatively good
performance of self-governing Iraqi Kurdistan, this in itself contains the
seeds of destabilisation for south-eastern Turkey where a Kurdish
population harbours hopes of an independent Kurdistan and can feel the
attraction of the statehood their fellow Kurds, on the other side of the
border, have been informally but effectively enjoying, counting as they do
on a division of Iraq into three separate entities.
In any case, what with the institutional standstill, the postponement
of negotiations on several ‘chapters’ for which criteria implementation was
deemed inadequate by Brussels, followed by the recent re-opening of
negotiations on three, as well as the very modest progress achieved in the
Cyprus issue (still outstanding through the fault of both sides and of
Europe itself imprudently admitting Nicosia to the Union prior to the reunification of the island planned by the United Nations), Europe’s
relationship with Ankara is in a state of uncertainty marked by mutual
recrimination. In both Europe and Turkey, those hostile to Turkey’s
accession to the Union – even played out over a lengthy process and
postponed by a decade at least – have recently gained new strength.
Following the two referendums, as pointed out earlier, domestic
political considerations have weighed in more heavily on all issues
concerning the Union and in particular on enlargement: their impact is
even stronger with regard to Turkey than it is for the Balkan candidates.
There are renewed fears over the possible entry into Europe of 70 million
Muslims and the integration of an economy which, although dynamic,
remains very unbalanced; which has shown strong growth but is still far
from the income levels prevailing in Europe, even compared to the ‘ten’
who entered in 2004 (but not Romania and Bulgaria); and which is saddled
with high inflation and recurring financial imbalances. In addition to this
Turkey would potentially elect the largest national representation in the
European Parliament.
Furthermore, Sarkozy, who had already spoken out against Turkey’s
accession during the presidential campaign, has reiterated his grave
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doubts, which boil down to outright opposition, and are redolent of
Chirac’s earlier pledge to submit any treaty of accession to a referendum.
Chancellor Merkel has expressed a strong preference for establishing a
special relationship with Turkey rather than granting it membership.
Conversely, London and other minimalist countries are in favour of
admitting Turkey with the guarantees provided by a lengthy process and
verifiable targets. All in all, several countries would appreciate alternatives
to full Turkish membership, but Ankara has so far refused to entertain
these possibilities.
5.
The borders of Europe
On the whole, alongside recurring references to compatibility and
convergence among economies, integration of tax and corporate
regulations, standards extension and the adoption of broad European
policies, discussions on enlargement are currently increasingly dominated
by problems and questions that are essentially political, cultural and
psychological. After two periods of geographical expansion, the first driven
by geopolitical concerns with the pursuit of stability and balance in the
Western part of the continent, and the second powered by the emotional
and cultural thrust to recover Eastern Europe, the new accessions are now
considered in light of Europe’s own strategic interest and how it can
realistically work towards the goals it has set itself. Bearing this in mind,
discussions on the limits and borders of Europe, often deemed an exercise
in pure speculation, appear increasingly meaningful. Europe’s external
borders and its identity, the Union’s institutions and a common vision of its
role in the world, internal compatibility among members and compliance
with the duties, rights and values of a community of fates, all make up a set
of interdependent issues that cut across both institutional and
organisational dimensions and the issue of geographical make-up.
There is an understandable reluctance to discuss Europe’s external
borders in current terms, not only because Europe itself is extremely hard
to define, beyond the borders traditionally plotted by geographers and
historians, but also because there is a reluctance to draw lines that would
exclude countries with which there are often deep and cooperative
relations or cultural proximities. Another reason to refrain from defining
frontiers is an awareness of the interdependence specific to today’s
globalised world, amid the decline in exclusive state sovereignty and
jurisdiction, and the intrinsic porosity of contemporary borders.
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From a political and cultural standpoint, any attempt to mark out an
external border might seem to imply that Europe really wants to define
itself by contrast to those beyond its borders, who are ‘other’, in a revival of
the ancient Hellenic dichotomy between ‘us’ and ‘them’ (Gress, 2004). In
economic terms, borders conjure up external tariffs and the restrictions that
were ubiquitous until quite recently, feeding recurring bouts of
protectionism, and that still pursue us from one trade round to the next.
Finally, borders revoke the concept of security: a very clear point is made
by laying down a border in the real sense of the word – a line where
external defences, the walls protecting a given demos are traditionally
placed. Nor should one overlook the sacred and almost timeless character
extended to the concept of border by the political, cultural and also
geographical shape given to Europe in 1648 by the Treaties of Westphalia,
at the close of a series of conflicts that climaxed in the Thirty Years War and
brought to an end a lengthy period in which sovereignties of various kinds
and strengths had co-existed, overlapped and intersected.
On the other hand, can one really avoid an issue as basic as the
definition of a clear external border, more grounded in recognisability and
fellowship than in geography? However much trust one may have in the
demiurgic nature of the force des choses, is it really thinkable to leave the
definition of Europe’s borders to unfurling events, external and random
factors, or the slippery slope of Brussels bureaucracy when one knows how
vague the original treaty was in limiting eligibility to Community
membership to European countries – without however attaching the map?
Today there is widespread popular demand for clear borders and the
territorial definition of what is to become Europe: the question is not just
where and how the European edifice will be completed, but also in which
terms and with which features its boundaries will be established. In the
end, the Union’s enlargement policy will have to meet public demand: it is
axiomatic that in a democracy government decisions have to be guided by
due consideration for the attitude and will of the people.
Europe’s external borders are first of all defined by two political
benchmarks, the external and the internal. The external or ‘foreign policy’
benchmark corresponds to a comprehensive dimension covering Europe’s
security, the protection of its interests, the scope of its interventions and the
foreign policy the Union wishes to uphold in a multi-polar scenario, as well
as the political image it wishes to project in its relations with major entities
such as states and intergovernmental organisations or the bodies and
sometimes informal entities spawned by globalisation. Without entering
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into debates on soft and hard power and their relative effectiveness, or their
recommended mix in the management of international relations, one
should point out that Europe currently projects itself mainly through its
political and social decisions. Europe’s main features are a mature and
participatory democracy, the rule of law and the upholding of civil liberties
and human rights, tolerance and pluralism, the pursuit of prosperity
combined with social justice, freedom of enterprise and trade, the defence
of European security and a commitment to peace, the advocacy of
multilateralism on the basis of agreed rules, a humanistic vision of relations
between states and the belief that aid to poorer nations is a prerequisite for
world stability and security.
Adequate political, economic and military resources will have to be
made available to this end. Europe’s political strength derives from the way
in which it projects these values, as demonstrated by the attraction it
exercises globally, something that is perhaps more clearly perceived by the
outside world than it is within Europe, where debate is often glum,
negative, ‘declinist’ and tainted with ideology and scepticism. Europe’s
international stance is in any case the frame within which its short-term
goals are ordered: the pursuit of stability in contiguous European regions
and security along its borders with areas of deep unrest. As stated earlier,
future enlargement is linked to these goals.
The ‘internal policy’ benchmark hinges on the institutional issue and
the inevitable adaptations its members, candidates, and the Union as a
whole will need to accept in view of the legislative, political, cultural and
value differences between candidate countries and the Union’s core
member states. This inevitably shifts the discussion back to the basic debate
underpinning the whole European process, from the Treaties of Rome to
enlargement, a debate featuring two opposing political views and focusing,
in the final analysis, on Europe’s very identity.
6.
Europe’s identity
In fact, looking beyond the slew of arguments and theories, what is at stake
in Europe’s political debate on institutions and enlargement is basically its
very identity, insofar as external borders and identity are one and the same.
This is an inescapable issue, not only because it is clearly defining for the
overall European design, but also because principles of democracy and
political caution require that it be put clearly to the peoples of Europe,
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regardless of whether accession treaty ratification is entrusted to
parliaments or referendums.
One can easily argue that deliberate vagueness on issues of European
identity was a decisive factor in the French and Dutch rejections, as pointed
out in the interpretative controversies and ex-post rationalisations that
followed the referendums. The controversies were fuelled by a number of
biases, either genuinely felt to be important, or stemming from overly
simplistic argumentation – inter alia because of a lack of communication on
the part of national governments and Brussels – or from yet other
controversies based on reasoning and arguments echoing ancient
misunderstandings. Alongside reasons of a general nature – a
disappointment with Europe voiced by those who seemed unable to recall
the distressed circumstances of yesterday from their current position of
prosperity largely ascribable to progress achieved by the whole continent,
or growing hostility to the Commission’s perceived over-regulation – one
prominent and widespread feeling was so-called ‘enlargement fatigue’, a
dwindling belief in the ideal, a lack of trust in the future, risk aversion and
a set of fears linked to enlargement. Today, other member states have
followed the French and the Dutch, months after the fact, in expressing
anxiety at the idea of letting into their common home other poorer and
politically unstable countries, economically weak and lacking in
infrastructure. There is also dread of a massive inflow of immigration (the
‘Polish plumber’), fear that new members will be granted priority access to
structural funds that will end up being directed to their poorer regions, as
well as lurking trade protectionism, ever suspicious of whoever manages to
produce more competitively. And to that one must add a visible concern at
the ‘otherness’ of Islamic values and the Muslim way of life, as compared
with European traditions.
Beyond these specific reasons, the underlying cause for rejection
seems to be a deep and widespread fear of what the Germans call
Entfremdung, the loss of identity. For Europe, a voluntary union of different
peoples and states that have decided to share a large part of their
sovereignty, modern self-awareness does not equate identity with race or
unifying ethnicity, any more than with geography, language or religion.
Europe includes countries with a clear awareness of their identity but
where a number of different languages are spoken, elsewhere languages
and cultures spread beyond national borders, people share a language and
a culture but not a religion, states have lost or gained vast territories and in
the process suffered losses and taken in refugees or moved into new lands,
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and yet their identity has remained unchanged. These are all-important
ingredients in a people’s self-awareness and self-image, whether true or
distorted by legend, and therefore an integral part of their self-perception
(Barzun, 2000; Le Goff, 2003). Further basic components of identity are a
common history and great and illustrious traditions, often tragic and
weighty – with the seeds of war, misuse of power and disaster – to be
prevented.
Since the Enlightenment, there has been a growing awareness that the
keystone of social groups’ ‘republican’ (Viroli, 2002) identity is their
decision to live together, that conscious will of citizens, that ‘everyday
plebiscite’ referred to by Ernest Renan and others, that state citizens have
devised for themselves, the basic law of the country, the social contract and
the institutional arrangement consciously and freely chosen by the people.
In the case of Europe, where strong member state identities coexist with the
Union’s developing identity, the latter is particularly to be sought in the
‘comun diritto’ (or acquis communautaire) as expounded upon in this
volume by Mazzini. As it develops it will increasingly be embodied in the
Union’s institutions, its shared freedoms and duties, the common
principles and values around which the social contract and political
institutions have been shaped as well as in the Charter of Fundamental
Rights – which, despite having been legally sidetracked in Brussels, mainly
because of the United Kingdom, is still referenced in the Treaty. The
broader the range of human activity governed by common rules, the clearer
the borders of Europe will become to its citizens and the outside world.
In this sense, the issue of enlargement and institutions intersect each
other in such a way as to require that they be dealt with together.
Intuitively one sees that the Union will in any case require a clear definition
of its nature, its legal identity – the international personality of Europe has
been retained in the Lisbon text – through its institutional arrangements
and strategic goals, so that candidates can knowingly decide in what kind
of regulatory and organisational context they wish to view their future.
What is at stake is no longer simply accepting the acquis communautaire, but
rather finding a position within a specific institutional system, internalising
the consequences domestically, adapting laws and culture as required,
signing on to the sharing of a number of areas of Westphalian sovereignty,
and devolving allegiance for each of these to the Union or to the Union
component candidate countries are able and willing to adopt. The societal
paradigm deriving from this shall be based on a free and conscious choice,
while purely instrumental accession aimed at obtaining short-term
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advantages or striving solely for prosperity would soon lead to
dysfunctions that endanger the whole system.
Conversely, in deciding what type of Europe they want in the future,
members will have to consider future enlargement and have a basic idea of
the type of candidates they feel could be accommodated within their
geopolitical and ideal vision of the Union. We know that this will not be an
easy choice, considering the differences in approach upheld by minimalist,
sovereigntist and integrationist member states, so far reconciled by
deliberately reduced ambitions. It is also obvious that different countries
have different attitudes to the outside world and there is widespread
concern about the required ratifications. For this reason too, it would be
better to avoid confronting European states and peoples with a stark choice
between two extreme positions, in a take it or leave it alternative.
Candidate countries will also need to choose what kind of Union to accede
to or, put differently, which European identity they are willing and able to
identify with, and what timeframe and procedures they realistically think
they can commit to as candidates for accession, without running the risk of
being rejected, be it only by a single member state refusing ratification.
In view of the current standstill, one wonders whether it was wise to
put the cart before the horse and give rise to unwarranted expectations.
One also wonders how much time we have left and how we should make
use of it. More importantly, what kind of complex diplomatic activity will
be required to prepare a resumption of enlargement while avoiding hasty
decisions that might damage European construction? Such haste might lead
to the possible rejection of countries drawn into ill-fated negotiations and
end up creating areas hostile to Europe at our very borders – an outcome
diametrically opposed to the original intentions of the Union’s
governments.
7.
Enlargement in 2009
Whatever one’s verdict on the Treaty of Lisbon, there is something of a
temporary nature to it, as in all compromises with built-in obsolescence,
because of the need to accommodate two visions of Europe that are
increasingly at odds. It is impossible to tell whether, with time, Europeans
will go for: ‘one’ European Union or several entities and bodies, concentric
or partly overlapping, a Russian doll or a set of different levels or different
‘densities’. Clearly if the Union were to be reduced to its lowest
denominator, a free trade area that would at best lead to a single market,
158 | CANGELOSI & SALLEO
this would mean one kind of pact, whereas a more markedly integrationist
model would entail something quite different. Concentric circles and
different speeds would require yet another approach, and a variable
geometry system or the hub and spoke model of enhanced structural
cooperation would entail something else again. Not to mention the
additional intricacies of opt-outs and other complex mechanisms. The
enlargement policy will have to adapt to these unknown quantities.
Approaches to negotiations and negotiation methods have also
undergone considerable changes following the European Council and in
view of the Lisbon Treaty. Even though its political significance has been
diminished by British reservations, in particular, and its terms of reference
are not clearly defined, the ‘long’ European Council presidency will
certainly play a leading role in the resumption of enlargement.
Furthermore, the new text of Article 49 of the European Union Treaty states
that in regard to eligibility criteria and procedures for accession to the
European Union, reference shall be made to the values of the European
Union and European states’ commitment to promote them. New Article 49
has also been made to include a pre-existing provision whereby the
European Parliament and national parliaments shall be informed of
membership applications.
There is also a new mention of the accession criteria agreed by the
European Council, as defined in Copenhagen in 1993 and modified in
Madrid in 1995. These require the presence of stable institutions
guaranteeing democracy, the rule of law, human rights, respect for
minorities and their protection (the political criterion); the existence of a
reliable market economy and the ability to cope with market forces and
competitive pressure within the Union (the economic criterion); the need to
accept obligations deriving from accession, and in particular the goals of
political, economic and monetary union (the community acquis criterion).
For accession negotiations to begin, the political criterion must be met.
Amendment of the criteria by the European Council therefore requires
unanimity. These changes will have an impact on the Union’s very ability
to define its own boundaries and in many respects will provide an implicit
response to the call for clear border definition. Within the complex system
of international relations, the type of interaction between the High
Representative (the de facto Foreign Minister, who will also be VicePresident of the Commission) and the Commissioner responsible for
enlargement remains to be seen. The matter is not simply one of form, as it
raises the currently very sensitive issue of relations between Council and
THE ENLARGEMENT OF THE EUROPEAN UNION | 159
Commission, where the balance has so far fluctuated over time depending
on the personalities involved and the political positions prevailing in
capitals, not to mention the need to adapt in terms of timeliness and
geopolitical analysis to the complex relationship between foreign policy
and new member admission.
8.
After the Lisbon Treaty
Confidence in the ability of candidate countries and their citizens to move
closer to the European Union and its political and economic standards
seems to suggest that the intermediate stages of the process leading to full
membership can be outlined. In order to manage enlargement realistically
while avoiding the dual pitfalls of total closure – for which time has
probably run out – and of a complete watering down of the European
concept into a mere economic area, what is required is an approach that
combines stringent compliance with the requirements for full membership
in Europe on the part of candidates able and willing to do so, and the
possibility of alternative flexible or partial models of participation in the life
and activities of the European Union. These could include a vigorous
‘neighbourhood’ policy as well as initiatives under consideration for the
Mediterranean area, an area of free circulation as well as open-ended
enhanced cooperation or closed initiative-based groups, all of which,
however, would be connected with the core institutional set-up.
Regarding cooperative relations with contiguous regions, the
Mediterranean should be returned to its central place in European policies,
which currently seem to lean increasingly towards the East and the
Caucasus as a result of biased or short-term perspectives likely to involve
Europe in areas far removed from its centre of gravity. After the failure of
the Barcelona process, a strengthened Mediterranean policy requiring
innovative fleshing out to overcome the predictable reservations of many
members would restore some balance to Europe’s geopolitical position and
help the Union consolidate its interests in contiguous regions. The prospect
of a structured Euro-Mediterranean organisation begs the question of
whether this should entail an alternative status for some of the enlargement
candidates so as to connect them in a stable but evolving manner to
Europe.
Despite its many limitations, the Lisbon Treaty, which although
simplified does preserve the essence of the Rome text, could signal an
intention to move together towards greater integration, at least among the
160 | CANGELOSI & SALLEO
able and willing, as long as the good faith of its signatories is more robust
than that of those who signed in Rome. For the time being it would appear
that we have dispelled the prospect of a neo-sovereigntist victory – with its
advocates not only in the East but in Paris as well – and avoided a
resurgence of British minimalism.2 The upcoming British elections will tell
us more.
Interests may however yet splinter not only politically but also in
terms of greater single market design. Without stronger institutional
power, this market might become a wholesale battleground or the premise
for an unregulated free-for-all; instead of a market-place coordinated by
competition, a locus of substantive anomy that would only benefit the
strongest. If that were to occur, launching a two-speed Europe would
become the only solution for those who feel more integrated and effective
policies need to be developed around the central core represented by the
Eurogroup.3
2 The positive aspect lies in the fact that the most significant aspects of the
Constitutional Treaty have been retained: in particular, the legal personality of the
Union, the Minister for Foreign Affairs (although the term used will continue to be
High Representative), the European External Action Service, permanent structured
cooperation in the defence sector, a stable European Council president, the Charter
of Fundamental Rights (despite waivers for the UK), the extension of majority
voting, voting modalities (dual majority as of 2014), the hierarchy of rules, the
elimination of the ‘pillar’ system, the new policies.
The negative aspects are first and foremost the definitive abandonment of the
term Constitution, of the Union’s symbols (flag, hymn, motto) and the various
concessions granted to the Poles, the British and the Dutch in order to reach an
agreement. Particularly regrettable is the removal from the text of the primacy of
Community law and its transfer to a declaration by the Inter-governmental
Conference to be attached to the Treaty; the decline in the Commission’s powers of
initiative following the strengthening of the principle of subsidiarity and the power
granted to national parliaments to challenge Commission proposals, greater
rigidity in conferring new competences to the Union and the possibility of
renationalising common policies. Equally noteworthy: the opt-outs granted to the
UK and Ireland in the judicial and home affairs sectors, and the special system
whereby the Charter of Fundamental Rights will not be fully applicable with
regard to the UK and Poland (although Poland’s position might change as a result
of recent elections there). The IGC also granted the UK the unprecedented
possibility of opting out from the acquis of the so-called ‘third pillar’ if, after a
3
THE ENLARGEMENT OF THE EUROPEAN UNION | 161
The common institutional system, Europe’s main heritage, will in any
case need to provide assurance against an à la carte Union, overseeing the
special formulas worked out among members and protecting instead the
overall grand design. In this perspective, the enlargement policy will to
some extent be a litmus test of whether the minimalist outlook or the
outlook supporting gradual political integration will prevail. Those
institutions that stand at the cusp between membership and various forms
of association and which coordinate and provide consistency to the
system’s various component parts will therefore require strengthening.
How the Union moves towards an institutional arrangement that meets
today’s needs and allows for progress towards integration will in turn be
influenced by whichever concept of enlargement prevails – not in abstract
terms, but with specific political reference to current candidates and others
that can realistically be considered as prospective partners in the European
venture.
References
Barzun, J. (2000), From Dawn to Decadence, New York: Harper & Collins.
Dlouhy, V. and B. Emmott (2006), “The Vulnerable Success of Central and
Eastern Europe”, in Gazeta Wyborcza, Warsaw, 9 October.
Gress, D. (2004), From Plato to NATO, New York: The Free Press.
Le Goff, J. (2003), L’Europe est-elle née au Moyen Age?, Paris: Seuil.
Nugent, N. (ed.) (2007), European Union Enlargement, The European Union
Series, Basingstoke: Palgrave Macmillan.
Viroli, M. (2002), Republicanism, New York: Hill and Wang.
transition period, the country were to decide against being subject to the power of
the Commission and the Court of Justice in this area. Finally, following a French
request, competition has been deleted from the list of Union goals and transferred
to a protocol annexed to the Treaty. As far as voting procedures are concerned, the
dual-majority system – again following Poland’s request – will enter into force in
2014, with a transition period running to 2017 and with a strengthened safety net
(the so-called Ioannina compromise, to be defined by an ad hoc decision, subject to
amendment or revocation by European Council consensus decision).
9. EUROPEAN DEFENCE OR DEFENCE OF
EUROPE?
ALESSANDRO PANSA
1.
The institutions: A past of great hopes, a future with no illusions
Europe’s commitment to defence and security dates back a long way and is
also a recent phenomenon.1
It dates back a long way as the attempt to create a European Defence
Community (EDC) arose in the 1950s in response to US pressure (plus ça
change…), but was abandoned in 1954 when it failed to obtain ratification
from the French Parliament.
It is also recent, however. Following lengthy discussions and the
creation of institutions with little political and military importance, it was
only in 1999 that the European Security and Defence Policy (ESDP) was
created. Even now, European defence capabilities are still being
implemented (some are still at the assessment stage).
The concept of European defence is closely linked to the issue of
sovereignty, part of which must be ceded in any joint security initiative.
The failure of the EDC – perhaps a too ambitious project for its time –
led to the abandonment of attempts to limit the sovereignty of countries
and to create an ‘organic’ European structure using a problem-based
approach, much favoured by Jean Monnet. Thus the issue of European
defence was not discussed for a long period.
NATO was at that time responsible for European defence, based on
the collective defence principle set out in Article 5 of the North Atlantic
Treaty. After the EDC failed, the call by the Eisenhower administration for
1
On this subject, see Missiroli & Pansa (2007).
162 |
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 163
a European defence angle was superseded by the creation, following a
proposal by the UK, of a new organisation: the Western European Union
(WEU). The WEU had little political and military importance, but it did
create an agency for armaments cooperation, the Western European
Armaments Group (WEAG).
The role of NATO has always generated a great deal of debate ever
since President Charles de Gaulle’s initiative in 1966 to withdraw France
from NATO’s integrated military command structure in peace time, in
support of a European defence structure independent of NATO, while the
UK remained loyal to the idea of a North Atlantic alliance. These actions
gave rise to the complex situation that still influences European decisions
today.
At the end of the Cold War, the changed international situation
provided an opportunity to go down the path of a common security and
defence policy; it was time to reorganise NATO, which until then had been
based on the defence of European territory against the Soviet threat.
Moreover, in 1991, the first Gulf War highlighted the inadequacy of
European armed forces compared to the technological capabilities and
projection of the United States, while the start of the war in the Balkans
highlighted the issue of European intervention in crisis-hit areas. The need
thus arose for European military capacity to enable it to intervene beyond
its borders in support of humanitarian assistance.
The European Union’s Maastricht Treaty in 1992 created the
Common Foreign and Security Policy (CFSP) – the second pillar of the
European Union – as well as the first draft of a defence policy. The CFSP
represented a compromise between the positions of France, Germany and
the UK. While France and Germany supported the need for a common
policy, the UK did not want to create competition with NATO. The result
was that the CFSP had many good intentions, limited instruments, but no
military capability. The Treaty declared that the CFSP included “the
eventual framing of a common defence policy which might in time lead to a
common defence” (Article J4). The WEU, meanwhile, was responsible for
defence.
To achieve a common defence, NATO had to become more European.
The North Atlantic Council that was held in Berlin in June 1996 advocated
the creation of a European security and defence identity within NATO.
Agreement was reached on measures to grant planning capacity, military
capability and the use of NATO commands in favour of the WEU for
164 | ALESSANDRO PANSA
military missions of crisis management. President Jacques Chirac therefore
decided on France’s partial return to NATO’s integrated military
command. But controversy on the appointment of a European commander
to the NATO command AFSOUTH in Naples2 blocked France’s definitive
return and any hopes that the alliance would become more European.
The WEU therefore again formed the nucleus of a European ‘armed
wing’. The Amsterdam Treaty in 1997 provided for the incorporation of the
WEU into the CFSP, the inclusion of the Petersberg missions (humanitarian
and rescue, peace-keeping tasks and tasks of combat forces in crisis
management including peace-making) and the possibility of reciprocal
cooperation between member states in the armaments sector.
From this came the beginnings of multilateral cooperation in the
armaments sector. In July 1998, France, Germany, Italy, the UK, Spain and
Sweden signed a Letter of Intent with the aim of restructuring the
aerospace and defence sector; while in September 1998, France, Germany,
Italy and the UK founded the Organisation for Joint Armaments
Cooperation (OCCAR) to manage joint industrial projects.
The arrival of Tony Blair in Downing Street in 1997 paved the way for
a reconciliation with France and a more credible European defence policy,
given that the new British prime minister seemed to be in favour of
European integration, which he considered an unstoppable phenomenon.
The first step towards a European Security and Defence Policy was
taken at the Franco-British summit at Saint Malo in December 1998, where
it was proposed that the EU must have the capacity for autonomous action,
backed up by military forces, in order to respond to international crises.
The word “autonomous” was chosen as a compromise between the
positions of France (“independent”) and Britain (“complementary to
NATO”).
There was, however, agreement on one issue: Europe needed a
strong, competitive industrial and technological defence base. The
agreement between France and the UK was a necessary but not sufficient
condition: external events also contributed to the creation of a defence
policy.
2
See Dassù & Menotti (1997).
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 165
1999 was a decisive year. NATO intervened in Kosovo in March, and
the failure of the Rambouillet agreement again convinced Europeans that
the capacity to use military intervention as well as diplomacy was needed.
The aerial campaign once again showed how Europe as a whole was
technologically inferior to the US.
The Cologne European Council meeting in June established the first
principles of the ESDP, incorporating the decisions taken in April at the
North Atlantic Council in Washington, which – as previously established
for the WEU in Berlin in 1996 – extended access to NATO capacity by the
Union for autonomous European3 missions according to the formula
subsequently renamed the ‘Berlin Plus’.
Concrete objectives for autonomous capacity were established at the
Helsinki European Council meeting in December 1999: the Helsinki
Headline Goal required member states to make 60,000 personnel available
for Petersberg missions by 2003.
The ESDP inherited the WEU’s crisis management systems. In
October, as stipulated by the Amsterdam Treaty (Article J8), Javier Solana
was appointed Secretary-General of the Council and High Representative
of the EU for the CFSP. He also became Secretary-General of the WEU. It
was decided that the WEU would cease its activities by July 2001 and
transfer to the European Union its functions and organisations, with the
exception of the WEAG, which would remain active for the time being.
This development began to meet with early success: in the ‘Force
catalogue’ – prepared at the conference on military deployment in
November 2000 – some 100,000 men, well in excess of the stipulated 60,000,
were made available by the member states for the Helsinki objectives. In
December 2000, the French Presidency approved the Treaty of Nice, and
defined the Berlin Plus agreements and the politico-military structures of
the ESDP. The Capabilities Improvement Conference of November 2001
instituted a European Capability Action Plan (ECAP) to bridge the gaps in
military capacity, thereby rationalising member states’ defence
programmes.
Washington Summit Communiqué, NAC-S(99) 64 of 24 April 1999 (available on the
website www.nato.int).
3
166 | ALESSANDRO PANSA
The year 2003 was critical for the ESDP. In January the first mission
(the European Union Police Mission, or EUPM, in Bosnia-Herzegovina)
was launched, while the start of the first military mission (Concordia in
Macedonia) in March was made possible by the implementation of the
entire package of Berlin Plus agreements via a framework agreement
contained in an exchange of correspondence with NATO. However, in
order to respect the civilian nature of the organisation and avoid
controversy between member states, most of the ESDP’s missions are still
non-military, such as police missions or the restoration of the rule of law.4
The European Council of December 2003, which ended the six-month
term of the Italian Presidency, was a decisive moment for the future of the
ESDP, which saw the adoption of the European security strategy, “A secure
Europe in a better world”, drafted by the Solana administration. This
represented a genuine strategic conception of the identification of
scenarios, threats, objectives and concepts for the ESDP.
It is opportune to note that this Council is mainly associated with the
breakdown in negotiations to finalise the Constitutional Treaty. The
unsuccessful attempts to implement the treaty have parallels with the EDC.
As is well known, the treaty was redrafted by the European Convention
(Convention on the Future of Europe) and amended by the member states
at the Intergovernmental Conference but was not approved, as anticipated,
by the December Council. It was then adopted in June 2004, only to be
rejected by the French and Dutch referenda in 2005. Following a period of
reflection of around two years, a new Reform Treaty was signed in Lisbon
in December 2007. The Treaty of Lisbon will come into force in December
2009.
The Treaty of Lisbon envisages the convergence of national defence
policies: member states no longer have the objective of developing a
common military capacity, but must make their national military
capabilities available to the European Union (Article 28A). The Treaty is
strongly inter-governmental; national security, in particular, is considered
to be the exclusive responsibility of individual countries.
See Alcaro (2006). For an up-to-date list of ESDP missions, see the Council’s
website (www.consilium.eu).
4
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 167
The Treaty of Lisbon seems to accord a greater role to NATO at the
expense of autonomous defence. NATO is still the bedrock of a common
defence for the allied countries. The Berlin Plus agreements are the pillar of
cooperation between NATO and the EU, and the Union’s best tool for
implementing a common defence and contributing to the restructuring of
NATO.
The Treaty of Lisbon preserves the main provisions of the ESDP
stipulated by the Constitutional Treaty, which are currently being
implemented by means of permanent structured partnerships such as battle
groups (tactical groups) and the European Defence Agency.
The idea of battle groups was first proposed in February 2004 by the
British, French and Germans as a package of autonomous multinational
forces of around 1,500 men to lead out-of-theatre military missions at the
request of the UN. Battle groups became operational in January 2007, and
the concept has been incorporated into the 2010 Headline Goal, the current
objective for military capabilities.
The European Defence Agency (EDA) – established by a Joint Action
of the Council of Ministers on 12 July 2004 – is tasked with supporting
member states in their efforts to improve European defence capabilities to
bridge any gaps identified by ECAP; to promote research and technology,
and to harmonise European purchasing, armaments policy and military
procurement. The Agency took over all the activities of the WEAG, which
ceased operations in 2005. It also liaises with OCCAR.
Is the Treaty of Lisbon a step backwards compared to previous
decisions? From a decision-making and legislative point of view, this is
undoubtedly the case. It talks about a common defence and ‘sharing’
security initiatives.
But it looks like a compromise – perhaps the only one possible –
between countries that have gradually developed differing perceptions of
the role, and even the ‘essence’, of Europe. It may be the only way forward
at a time when Europe seems less likely to be able to ‘lead’ Europe than in
the 1990s.
However, initiatives such as the creation of the European Defence
Agency is one of the positive results in recent years on the issue of defence.
As we will go on to see, this Agency can effectively be considered the
fulcrum around which a common military capacity can be built.
168 | ALESSANDRO PANSA
The Agency attempted to create a European defence procurement
market – using the 2005 procurement code of conduct – thereby increasing
competition and improving transparency in European procurement.5 The
Agency acts to improve the defence industrial and technological base, both
by preparing projects and strategies for research and technology and
through funding programmes, such as the Joint Investment Programme on
Force Protection, which is currently the only major joint programme. Many
of the initiatives proposed in the EDA’s documents remain on paper.
The European Commission has now issued an interpretative
Communication on Article 296 of the Commission’s paper6 – intended to
reduce the number of restrictions on competition that member states apply
in the sector, under the article – and in December 2007, published the
anticipated Communication on the defence package, the effects of which
have still to be seen.
The EU is finding its way again, but the European defence industry
must develop the military and technological capacity required.
2.
The industry: Oligopoly, foreign policy and internationalisation
Where and how does the European defence industry fit in the political and
institutional context that we have described? Does it have a future, whether
as a vital component of security policies or as an important part of Europe’s
economic and industrial landscape? And if it does, under what conditions?
To answer these questions, we have to first of all understand what we
are talking about: we should clarify immediately that the term ‘European
industry’ is an expression more of hope than of reality, as otherwise we
would talk about the ‘industry of European countries’. An industry that has
the characteristics of an oligopoly: 70% of defence systems worldwide
(which represent 1.2% of global GDP, or just over €400 billion in 2006) are
produced by the ten largest industrial groups, which operate in an
environment that is at the same time both cooperative and competitive,
The initial impetus came from the EU’s Green Paper, “Defence Procurement”
published by the European Commission, COM(2004) 608 def., 23 September 2004.
5
6 European Commission, European Commission Interpretative Communication on
the application of Article 296 of the EC paper on defence procurement SEC(2006)
1554; SEC(2006) 1555; COM/2006/0779 (definitive), 7 December 2006.
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 169
especially in Europe. Companies work together to develop technology and
products, but compete when marketing them.
Like all oligopolies, the defence sector has high barriers to entry.
These can be technological (acquiring expertise is a long and complex
process); financial (huge resources are required to develop, manufacture
and market products); and political/regulatory, since the authorisation
procedures, necessary to operate and to export, and contract negotiations
require extended timescales, as well as costly skills and resources. In
addition, the more powerful members of the oligopoly adopt strategies to
prevent new businesses entering the market (including acquisitions) or
assuming important roles and positions, which can lead to changes in the
rules of the game, and force the incumbents to review their manufacturing
and investment decisions. There are many such examples in the defence
industry.
Barriers to exit are equally significant. These are also financial in
character (adequate returns on investment in the sector are only realised in
the medium to long term) but also political/regulatory: a manufacturer of
products relating to national security – financed by public funding over
many years – is not in a position to exit the industry without incurring
costs. Similarly, it is inconceivable that a company’s shareholding structure
would be changed without formal and/or informal checks being
undertaken by the public administration.
The relationship with the public administration does not end there.
Since the end of the 19th century, the energy and defence sectors have
continually been the most important, listened-to and influential partners of
the governments of industrialised countries. But, while in the past,
government decisions and budgetary policies influenced industry, the
comparatively recent globalisation of production and the growing
informational asymmetry associated with increasing technological
complexity (which we will discuss later) mean that the sector is less
influenced by political decisions and more able to influence them. This is
particularly important for Europe, where industry can influence the
decision at either national or EU level.
The relationship with the public administration does not end there.
The relationship between industry, defence and industrial foreign
policy is equally important for the future of the EU.
170 | ALESSANDRO PANSA
The use of companies as a foreign policy tool by the governments of
large countries is well-known. Moreover, a strong, cohesive industrial
structure is clearly a powerful international policy tool. Medium-sized
countries with a significant industrial base are a very interesting case.
Foreign policy in these countries is, of course, based on compliance with
treaties, the management of partnerships and participation in international
initiatives: but it consists to a large extent of safeguarding the international
economic and industrial interests of its companies – so much so that the
foreign policy of these countries could be described as “made by
multinationals, backed to the hilt by their governments”.7
The body of interests to be safeguarded thus becomes crucial, and the
foreign policy of a country will vary according to the industrial nature of its
economy, and its international influence and role. The more technologically
advanced a country’s industry is and the greater its international influence,
the more the country’s industrial foreign policy is (or should be) geared
towards its companies in an attempt to influence the technological
standards of other economies, thereby having a lasting influence not only
on the production system of other industrialised countries, but also more
generally on the development model. This creates a virtuous circle between
the technological development process, and a country’s industrial policy
and foreign policy.
In this context, the importance of the defence industry lies as much in
its technological content as in the fact that its activity relates to a sector that
retains its own decision-making and technological models of production
systems, especially defence and foreign policy, long-term decisions and
models that could only be abandoned at great cost.
The defence industry is therefore a crucial element of a country’s
industrial foreign policy; but it is equally important for the development of
production systems in advanced economies, given its contribution to a
country’s technological assets. The ratio between R&D activity and
revenues in the industry is around 8%. Although not the biggest investor in
relative terms, the pharmaceutical industry is the only one that invests
more heavily than defence in absolute terms.8 This shows the importance of
7
See De Cecco (1998).
In the sense that sectors with a higher ratio between R&D and sales revenues post
lower revenues in absolute terms than the defence industry.
8
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 171
the absolute value of investment in research by defence companies, an
importance that is increasing due to the growing significance of dual-use
technology that has both military and civilian applications.
Moreover, there is a technology gap of 10 to 20 years biased towards
the West compared to defence systems developed in the rest of the world.
Some commentators maintain for example that Chinese military technology
is 20-30 years behind that of Europe and the US.9 Such a gap, together with
the low price elasticity of high-tech goods, makes defence-industry
products one of possibly the few areas where, in the long term, Western
economies enjoy a clear competitive advantage in exports compared to the
aggressive production and marketing of emerging economies.
The future influence and role of Europe’s security industry will also
depend on its ability to successfully ride out the ‘denationalisation’ of the
sector at various levels (technological, commercial, manufacturing and
shareholding), a process involving many factors: some exogenous and
others largely endogenous. Exogenous factors include the spread of
technology and changes in global demand for military equipment, while
trends in European military procurement policies would fall into the latter
category.
Up until the fairly recent past, the development of military
technology took place in locations and under conditions that allowed limits
to be placed on its use and forced innovation in the civilian field to take a
secondary role to that in the defence sector. The expansion of scientific and
technological expertise, the significant investment in technology in civil
industries (e.g. semiconductors, telecommunications, bio-engineering and
bio-genetics) and the increase in the skills base in many countries – due
both to the relocation process in some important sectors and the training of
new classes of technicians and scientists – set in motion the gradual spread
of military technology and a growing fusion of military and civil
technology. The much-feted concept of ‘dual technology’ is a clear
admission that military technology is no longer circumscribed knowledge.
Running alongside the ‘internationalisation’ of know-how is the
growing importance of changing global demand for military products.
Estimates agree on the growth of the latter, with some analysts putting the
9
See Bitzinger (2005) and also Stokes (1999).
172 | ALESSANDRO PANSA
real annual rate at 1.5-2% over the long term (from now until 2035-40). But
the main boost to growth in demand will come not from Europe or the US
but from two other groups of countries. The first is made up of the oilproducing nations (in the Middle East and Asia) that have to balance a
growing perception of geo-political instability with substantial trade
surpluses generated by high oil prices. The second group comprises the
three big non-Western economies: Russia, India and China. Budgets for
defence equipment are growing at more than double the rate in these
countries than in Europe and the US. Clearly, they are trying to secure
Western industrial technology through supply contracts, the acquisition of
shareholdings and the creation of joint companies.
The situation is therefore changing rather quickly. The defence
industry will never be global in terms of product standardisation or the
structure and localisation of activity: the technology and goods it develops
are considered too sensitive to be produced and marketed in the same way
to all clients. But the sector has rapidly evolved towards a ‘multi-domestic’
model, in which although there are still significant restrictions on the
circulation of technology and other limits on production standardisation,
companies derive an increasingly large share of orders from overseas
customers and tend to localise (if not transfer) some of their operations to
commercially attractive economies (i.e. to countries with large defence
systems budgets), which also have the appropriate infrastructure and highquality human resources.
The defence industry is thus experiencing significant and rapid
growth in competition (a word that was virtually unknown in that sector
until a few years ago) with companies facing pressure on prices, margins
and financial structures. In order to compete effectively, companies must
first obtain economies of scale and scope in the use of their manufacturing
base and technology (the home-oriented policies of the 19th century, known
as the piede di casa, still have some importance, despite globalisation).
Secondly, they must secure adequate access to the capital markets required
to finance strategic and industrial projects, which owing to their size and
technological content, are becoming increasingly costly. Such opportunities
are not open to European industry.
3.
Europe: Cooperation, inefficiency and nationalism
Many commentators maintain that European investment in defence
systems is insufficient, and there are probably good reasons to believe this.
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 173
Europe as a whole has the largest budget for investment in defence systems
in the world after the US (over €60 billion in 2008), but the industry is not
able to take full advantage of this due to the limited integration of the
procurement activities of the individual countries, which still make the
decisions and hold the purse-strings. In reality, the maintenance of cost
centres that are both limited in their financial capabilities and largely
independent from each other accentuates the effects of the relatively scarce
resources. The Centre for Defence Economics at the University of York
estimates that if the investment decisions of the six main EU countries were
integrated, savings of around €6 billion a year, or 13.5% of Europe’s total
budget for 2005, could be achieved: it would be as if Germany doubled its
investment in one fell swoop. It is by no means certain that the problem
could be solved through multilateral programmes, if it is true, as the
Swedish defence minister maintains, that defence programmes managed by
more than three countries are generally less efficient.10 Estimates put
efficiency losses associated with the different procurement systems and the
product differentiation required in multilateral programmes at around 23%
of output cost when two parties are involved in procurement. The figure
jumps to 30% when there are three. This is due both to the different
configurations required for the same product by individual countries and
the varied remuneration systems of production companies. The UK, for
example, uses ‘cost plus’ criteria aimed at minimising the business risk
borne by the contractor, which in turn will have fairly low profit margins,
after allocating a share of the profits to the client. Conversely, continental
European countries generally use ‘fixed price’ methods of remuneration,
which can theoretically lead to higher income for contractors in return for a
greater assumption of risk.
The disadvantages of the lack of integration (or the economic
advantages of a possible greater integration) therefore seem obvious. First
and foremost, it would lead to a more efficient use of financial resources.
The average return on invested capital for European companies is around
12%, which is higher than their cost of capital (8.5%) but lower than that of
their US competitors, whose average return is 16% and cost of capital
around 8%. This gap is partly due to the fact that US companies are able to
take relatively greater advantage of existing economies of scale in the
10
See Pansa (2002).
174 | ALESSANDRO PANSA
industry and partly because they do not have to find complex and costly
corporate structural solutions or accept sometimes inefficient compromises
in production structures in order to manage the funds of several countries
relating to specific programmes.
Moreover, the relatively limited return on assets means that it is less
efficient for European companies to obtain funding from the financial
markets. In reality, this fundamental springboard for development is not
generally accessible to many European defence companies, as their
shareholder structures do not allow them to raise large amounts of risk
capital on the market. This is often the norm with government-owned or
family-run companies, but is even more specific to French companies (the
cornerstone of any likely reorganisation of European industry), which are
bound by a shareholder structure chiefly designed to prevent them from
being taken over.
The integration of both procurement and industrial activity is a vital
element for any European ambitions regarding defence policies. It goes
without saying that this could not be efficiently undertaken without the
integration of the armed forces. But such integration could only occur if the
technology required for defence products could be made available to all.
What’s more, over and above the incentives arising from the actions of
companies (the integration of which have facilitated greater progress than
any policy since 2002), the effective completion of such a process is highly
political. As such, developments are not always linear, but subject to
political and regulatory resistance.11
While it is true that the industry today seems more proactive than
policy in pushing for integration – and that due in no small measure to the
combination of technological advances and the discipline imposed by the
financial markets on listed companies – it has not always been this way. In
the 1990s, European policy stimulated the integration and restructuring of
an industry that to all intents and purposes was still self-sufficient: the
Franco-British Joint Declaration on European Defence in Saint-Malo
(December 1998) and the declaration of the European Council in Helsinki
(December 1999) seemed to have ratified the Europeanisation of EU
countries’ military capabilities that would have inevitable repercussions on
For an analysis of the mechanisms that determine these processes, see Eliassen &
Sitter (2002).
11
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 175
industry. It seemed as if Europe was about to launch that virtuous circle of
“active foreign policy – public investment – manufacturing and technological
expertise”, which until then had only worked in the United States. An active
foreign policy requires the public administration to plough huge
investment into the defence sector, investment that will fuel the growth of a
country’s technological expertise, enabling it to strengthen itself against
other countries, play a more important role on the international stage and
therefore be more involved in international relations. This process did not
take place.
4.
Governments, institutions and investors: A changing role
If integration and restructuring initiatives today seem to be more in the
hands of industry than politicians, this is not only due to political inertia,
but also to structural developments that are rapidly changing the role of the
players involved in the relationship between the defence industry, public
administrations and financial markets in Europe. It is therefore opportune
to reflect on possible future developments.
At first glance it might seem strange that European governments will
see their role gradually diminish over the medium term. The main reasons
for this are four-fold: the informational asymmetry stemming from
increasingly complex technology and the risk of making decisions on the
basis of an inadequate information set; the cost of this technology and the
budgetary difficulties that individual European countries (including even
France and the UK, the two biggest investors in defence systems) will face
in financing its development; the gradual internationalisation of the market
and the greater influence that foreign interests will have on companies’
decision-making as a result; and the trend towards consolidation and
bigger shareholder bases. In this case the adage “strength in union” is more
appropriate than ever: the European Union could play a greater role to
compensate for the diminishing influence of individual countries.
The military capabilities required for a joint defence policy cannot be
built overnight. The starting point must of course be a joint technology
base: this could be the role of the European Union. The decision to provide
the European Defence Agency with sufficient funds to undertake the kind
of work performed by the US Defense Advanced Research Projects Agency
(DARPA) – responsible for identifying civil or military technologies that
could be used for national security and promoting their development –
would represent a significant turning point both in procurement (for the
176 | ALESSANDRO PANSA
first time a supranational European body would operate alongside the
procurement bodies of individual countries) and in respect of the EU’s
budget, which would have a new ‘defence’ category.
Beyond financial considerations, if the EU could influence investment
and strategic decisions by directly allocating funds to defence-related
activities, it would have a direct role in strengthening and restructuring the
industry, and have bargaining power with member states.
So why is this not happening? It is not possible to identify a single
reason for this umpteenth missed opportunity, but clearly legal and
regulatory difficulties, European bureaucratic inertia and vested interests
played their part. But the fact remains that if a defence category were
effectively added to the EU’s accounts and the EDA were to assume a role,
this could have significant consequences both on the relative influence of
individual European countries on defence policy (individual national
budgets would become less important over time) and on arms procurement
decision-making. The existence of a European institution with financial
powers would require an increase in joint investment decisions, and the
countries with the greatest propensity to spend would be partly affected by
it. The UK and French approaches to defence industrial policy (which we
will refer to later) show how difficult it would be for these countries, in
reality and behind the public declarations, to accept the effective launch of
a European arms procurement policy. Thus there is a risk that the Agency,
far from becoming a driver for European technological development,
would join the list of useless and expensive EU bodies.
There is, however, another initiative that could facilitate the
integration of European defence and also significantly strengthen the
industry. Moreover, it is directly linked to individual countries’ budgets:
the national accounting criteria currently established in Europe through
Eurostat (and confirmed by a resolution in March 2006) includes defence
systems investment in current expenditure. Apart from being questionable
at a conceptual level (military aircraft, warships or cost control systems are
not exactly comparable to photocopiers or service cars), it does not permit
the costs of purchasing goods with a period of use not normally less than
15-20 years to be allocated to more than one financial year. Methods of
accounting more appropriate to the nature of and criteria for the
development, production and use of military vehicles, which often have
fairly lengthy timescales and considerable research costs, could, and in our
opinion should, be introduced. These different accounting systems would
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 177
have a significant impact on both the cost borne by the public purse in any
one year and the option to introduce funding systems for defence
investment that would make it possible to fully exploit available
procurement resources without recourse to creative accounting of dubious
acceptability. Once again, this would assist the countries that have the most
difficulty in increasing their budgets for military equipment, and hence the
entire procurement system.
In recent years, private equity funds also seemed to be able to play a
role in the European defence industry. These investors were supposed to
bring a more scrupulous application of financial discipline and
management criteria strictly geared towards the creation of value – an
important element for an industry that still seems, on many fronts, to be
much less efficient than a more business-like management would allow.
5.
Industrial structures, control systems and the equity market
But here again, we believe that the equities market will play the lead role in
the future of the European defence industry, regardless of its performance
and its short- and medium-term trends. This might seem a strange and
risky assertion, considering that until a few years ago, the majority of
defence companies in EU countries were not listed and generally had no
relationship with the capital markets, but we don’t think it is.
In Europe, there are two fairly typical models – the UK and the
French model. The UK model is extremely pragmatic and based essentially
on three principles: collaboration between companies makes sense only to
the extent that it enables them to develop and manufacture competitive
defence systems; the state must remain outside companies’ shareholding
structures, or it would be inconceivable to talk about integration between
European companies. In this scenario, the identity of the UK companies is
relatively unimportant; it is much more important that they develop
research, technology and products on UK territory. (One wonders,
moreover, whether this British pragmatism hides not only an unwillingness
to take part in European aggregation but also a desire to prevent this from
happening and the EU having a greater influence than it does currently on
procurement policy.) Conversely, the French approach, which we could call
‘dominant autosegregation’ or ‘competitive autonomy’, is based on a
labyrinthine network of defence company shareholder structures, which
seems to have been created to ensure that the state retains control of the
companies and at the same time prevents them being taken over. French
178 | ALESSANDRO PANSA
industry seems willing to participate only in mergers that allow it to gain
control of foreign assets without sharing control of its own, and
furthermore, does not allow overseas strategic investors to hold a
significant stake in the capital of its own companies. This approach is not
conducive to integration, especially since the French system is undoubtedly
the cornerstone, in terms of size and technology, of virtually any
restructuring or consolidation of European industry. The French attitude to
maintain a strict control over its defence industry has recently increased, as
a response to the financial and economic crisis.
The equities market plays an important role in both models:
managing changes in ownership and management in the UK case, and
ensuring sufficient liquidity for investment without jeopardising the
shareholder structure in the French model. But only an expansion of this
role could ensure a successful long-term future for European industry.
The structure of the industry does not require the government to be a
shareholder in sector companies in order to control one of the country’s
vital resources, national security. The methods of assigning contracts
(favouring companies that maintain or plough investment into the
country), their financial structure, the availability of funds and public
structures (or funding by the public sector) for the development of
technology are also incentives to maintain and expand the national
industrial base. The UK ministry of defence, for example, has adopted a
definition of national defence industry on the basis of the place where the
technology was developed, the site of the intellectual property, the location
of new jobs and the destination of investment. This definition to a large
extent excludes companies’ ownership structure.12
Conversely, the distribution of most (if not all) of European defence
companies’ capital on the market – this is what is meant by the “greater
role of the market” – could promote a different, more efficient and stronger
industry structure, without diminishing the indirect control that the public
administration has over them. This could lead to more efficient (albeit not
necessarily more generous) financing of companies’ growth, a
strengthening of the financial discipline to which they are subject and a
drive to implement streamlined processes of restructuring and integration.
12
See UK Ministry of Defence (2002).
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 179
The effects of an expansion of the shareholding base would be seen both in
companies’ business structures and in their monitoring and control criteria.
From the first point of view, with stricter financial control stemming
from an increase in ‘public company’ status, companies vie for leadership
in their reference markets. In the defence sector, leadership can only be
achieved through technological superiority and the ability to exploit
economies of scale and associated economies of scope. By manufacturing
goods with a high technology content, companies can effectively reduce the
price elasticity of such goods, thereby increasing profit margins and the
cash flow available for investment aimed at strengthening technological
leadership, which enabled them to generate such investment in the first
place. It is therefore likely that we are seeing a concentration of companies
in those areas that allow better capital allocation alongside a gradual
reduction of their activities in sectors where an allocation does not optimise
the risk/return profile of the asset portfolio. Defence companies, in other
words, will tend to “do fewer things” but will have greater influence in
sectors in which they will maintain a presence.
The expansion of the shareholder base and the ability to take over
companies would also root out at source the problem of the control of
assets that, in today’s climate, is a real concern for some European
countries, and especially for the French industrial system. The absence of
key shareholders would facilitate company mergers, triggering a process of
greater integration between national procurement procedures, a process
that, in order to be efficient and effective, also requires considerable
political will. This would also benefit the managerial structure. Here too,
increased competition in the leadership of companies could facilitate
innovation and changes in a sector that is somewhat resistant to integration
with other industries, and enable senior managers to be brought in from
outside.
Put simply, European industry will be able to operate between four
extremes: on the one hand consolidation versus specialisation; and on the
other, tight control versus a more open and dynamic shareholder base.
While different combinations of industrial and shareholder structure would
theoretically be possible (including a powerful process of consolidation that
is not only stable but completely ‘closed’), it is likely (we might even say
“to be hoped”) that companies will become increasingly specialised, open
their ownership structure and subsequently regroup by production sector
or by technology, with a further expansion of the shareholder base.
180 | ALESSANDRO PANSA
Are there dangers inherent in this potential opening up of the market
and reduction of power currently held by the controlling shareholders,
which are often public or at least influenced by the will of the public
administration? Is there not a risk in letting financial democracy determine
the ownership structure of companies that develop and own technology
that is important for the security of a country, and at least 10 to 20 years
ahead of that of some countries, which harbour foreign policy ambitions
and therefore have an interest in undertaking active defence policies?
We don’t think so. Or rather, we think that if there is a risk, it’s one
worth taking, essentially for two reasons. The first is, strictly speaking,
defensive: control of specific technologies – and increasingly the control of
their use – is clearly important, but there are many formal and informal
tools with which to achieve it, other than the rigidity of the ownership
structure. We referred to this above. In this sense, proposals to institute
procedures to limit the investment of important financial players from
outside the EU do not seem appropriate. The change in the conditions of
financial democracy – one of the key competitive advantages of Western
economies – which would enable this, would go in tandem with an
approach that would maintain the status quo in the defence industry,
which is structurally inefficient (too nationalistic and fragmented) and
unstable in terms of shareholder base.
The second reason is more prophetic. Perhaps only the transfer of
defence companies’ control mechanisms to the market can usher in a phase
of definitive industry reorganisation (following that which occurred at the
beginning of the century), encouraging fundamental integration, which
would create companies of a sufficient size, asset base and technological
expertise to achieve a position of leadership, and foster the launch of panEuropean defence policies.
Finally, in this environment, the role of the sovereign wealth funds as
a potential shareholders of some defence or, more general, high-tech
companies could be considered more an opportunity than a risk. These
institutions have until now showed more an interest towards financial
returns of their investments (actually very limited in the most recent
periods) than the intention to play a more “political role” in the companies
where they are shareholders. Their role as providers of capital as well as of
business opportunities in their home countries could well be compatible,
through an adequate system of regulations and corporate governance
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 181
provisions, with either the protection of the technology or the
independence of the companies.
References
Alcaro, R. (ed.) (2006), Le Missioni PESD Operazioni, strutture, capacità (EDSP
Missions: Operations, systems, capabilities), IAI Research
Department of the Italian Senate, No. 49, July.
Bitzinger, M. (2005), “The PRCs Defense Industry: Reform without
Improvement”, China Brief, Vol. V, No. 6, 15 March.
Dassù, M. and R. Menotti (1997), “The Ratification of NATO Enlargement –
The Case of Italy”, proceedings of the Conference on NATO
Enlargement: The National Debates over Ratification, 7 October.
De Cecco, M. (1998), L’oro di Europa. Monete, economia e politica nei nuovi
scenari mondiali (Europe’s gold), Roma: Donzelli.
Eliassen, K.A. and N. Sitter (2002), Between Regulation and Competition: Hard
and Soft Resistance to Europeanisation in the Financial Services and
Defence Sector, Centre for European and Asian Studies, Norwegian
School of Management, Oslo, June.
Missiroli, A. and A. Pansa (2007), L’Europa della difesa, Genoa: Il Melangolo.
Pansa, A. (2002), European Defence Procurement and Industrial Policy: The case
for Sweden, Norwegian School of Management.
Stokes, M.A. (1999), China’s Strategic Modernization: Implications for the
United States, Strategic Studies Institute, U.S. Army War College.
UK Ministry of Defence (2002), Defence Industrial Policy, Ministry of Defence
Policy Paper No. 5, October.
10. EUROPE AND GLOBAL ECONOMIC
GOVERNANCE AFTER THE CRISIS
PIER CARLO PADOAN
E
ven before the global crisis, all long-term scenarios confirmed that
over the next 15 to 20 years, Europe’s relative economic weight
would shrink as that of new emerging economies – China, India,
Russia, Brazil (the so-called BRICS) rose. The crisis has done nothing to
alter this scenario, but it has made clear that the global economy is
suffering from a governance gap.
The crisis itself is proof of this statement, and is the result of both
market and policy failure. The international macroeconomic aspect of such
a twin failure is reflected in the inability to address the global payment
imbalances that have accumulated over a decade or so, (also) in the belief
that markets could finance such widening imbalances, thanks to their
resilience and efficiency. The post-crisis reconstruction requires a serious
reconsideration of how to deal with global macroeconomic imbalances,
now and in the future, and how to maintain the global economy on a
balanced and sustainable growth path through cooperation among all
major players, including the large emerging economies. To this effect, in
addition to macroeconomic governance, trade and capital market openness
and stability are essential prerequisites for a stronger global governance, as
has been stated repeatedly by the G8 and G20 summits. Is Europe willing
and able to contribute actively to meeting this challenge?
1.
The breakdown of Bretton Woods II and beyond
Most crises are drivers of change because they often lead to the breakdown
of key mechanisms and institutions and create the need for new ones. The
crisis that started in the US subprime mortgage market is the most severe in
eight decades and is also truly global. When it ends, the international
economy will never be the same again.
182 |
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 183
The crisis has destroyed the fundamentals of the so-called ‘Bretton
Woods II model’ (BWII) on which global growth has been based for the
past decade or so. In the BWII world, excess savings in emerging
economies, including oil-producing countries, were reinvested in the centre
of the system, as the US economy was considered the ‘safe haven’ par
excellence. The crisis has destroyed the credibility of the centre and, with it,
the main engine of growth and the financing of growth. It is highly
unrealistic, not to say unthinkable, that in the foreseeable future the main
engine of global growth will still be US household demand, fuelled by
sophisticated but opaque financial instruments.
Growth will resume after the global recession but it will most likely
be a structurally lower growth. More importantly, global growth will be
driven by several engines rather than by a single engine, and each of these
engines will be individually less powerful than the one that has collapsed,
as well as being partially disconnected from the others. Household demand
in the US will be partly replaced by American exports driven by a weaker
dollar, and also by the still powerful US productivity engine. It remains to
be seen if US investment and innovation will be able to generate, at least in
part, a productivity cycle as long and intense as the one that lay behind the
‘new economy’ of the 1990s.
One key question is whether the BRICS will move into the driver’s
seat of the world economy and become global engines of growth. As
mentioned above, long-term projections see China and India (although
much less so) as the top economies 20 to 30 years from now. But most of
these projections extrapolate into the future a scenario that may no longer
be there; a relatively stable world economy in which global markets are
open, economic integration continues to progress and there is no major
crisis. For this scenario to materialise, the post-BWII economy will have to
be based on two pillars – more domestic demand in emerging economies
and more ‘investment integration’ globally.
Concerning the first pillar, emerging economies both large and small
will, sooner or later, have to face the challenge of their own internal
transformations as domestic demand will have to be given more space and
export-led growth will be less relevant. This transformation will need to be
accompanied by high and sustained growth rates; necessary conditions for
these countries to raise the standard of living of a large part of their
populations who still live below the poverty line. Needless to say, such a
transformation will be even more demanding politically than economically.
184 | PIER CARLO PADOAN
The ‘investment integration’ pillar will have to offer a major
contribution to global growth. In BWII excess investment in the US led to
America’s growing current account deficit, while excess savings led to the
accumulation of international reserves in many emerging Asian economies
and in oil-producing countries. The scenario that worries countries like
China is the risk that their reserves will lose value because of the US
dollar’s depreciation and/or capital losses in the US treasury market. The
request for reform of the international monetary system and the creation of
reserve currencies as alternatives to the dollar – something increasingly
suggested by top Chinese officials – reflects this very real concern.
But this is only part of the story. A look at gross rather than net
capital flows shows that in BWII, while China exports capital that is
invested in US financial markets, it also imports capital from the US and
elsewhere that adds to its physical, knowledge, and human capital
resources. China has become a fast-growing base for international R&D and
a key component of global value and innovation chains, which could not
have taken place without a massive inflow of capital from the world’s
advanced economies. Much the same can be said of India and a number of
other Asian economies. A more sophisticated interpretation of the BWII
growth model therefore suggests that the massive investment of Chinese
reserves in US Treasury bills is a way of providing ‘collateral’ so as to
attract the levels of investment from American and other multinational
companies in China, which are essential to sustaining its high per capita
GDP growth. This interpretation also underpins the idea that China sees its
own best interest in the long-term profitability of its invested resources, not
in short-term gains. Of course, this works both ways, as China increasingly
values long-term capital outflows, as can be seen in the increasingly
important role of its Sovereign Wealth Funds. These, in China as in other
emerging economies, are instrumental in directing huge reserves towards
long-term investment and thus boosting the long-term growth rate.
A sustained long-term growth rate of the Chinese and other Asian
economies is fully consistent with a post-BWII model, where stronger
growth in emerging Asia would compensate for lower growth in the US,
especially if increased productivity growth in China is accompanied by a
gradual slackening of the propensity to save. This largely reflects structural
rather than short-term factors as the high-saving propensity of Chinese
households reflects the need to counter the absence of social protection.
And the high-saving propensity of companies reflects the inadequacy of
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 185
China’s domestic financial sector, which has led to high levels of retained
profits.
What about Europe? During the BWII years Europe was a slowgrowth economy, which could grow even more slowly in the future. The
massive use of fiscal measures to deal with the last financial emergency and
with the recession loosening fiscal disciplines, the sustainability of longterm debt will be made more difficult still, as is also the case in the US.
More flexibility in the application of the EU’s Stability and Growth Pact is
welcome and needed, but there is a risk that the credibility it has earned
over the past decade could evaporate. On the other hand, a long-term
European growth strategy based on a revamped and ‘green’ Single Market,
as well as the Lisbon Agenda for competitiveness, has yet to be
implemented to any large extent. Such a strategy could benefit greatly from
a more open global investment regime encouraging both inward and
outward long term capital flows.
In a post-BWII scenario, we could and should see smaller global
imbalances, and smaller current account deficits and surpluses in the US
and China respectively, but we might also see larger gross capital flows
between the world’s main economic regions. These flows would transfer
both physical and knowledge capital and thus drive productivity growth
on a global scale. This would be all the more so if climate-related and green
technologies were transferred much more than they are at present. But to
be really effective, these gross flows would have to be complemented by
flows of goods and services, whose role in a knowledge-driven economy is
essential. Open markets will be more important than ever.
What international institutions will we need to support a post-BWII
world? The post-crisis response led by the G20 includes a commitment to
major reform of the IMF and a strengthening of the Financial Stability
Board (formerly the Financial Stability Forum). The IMF has received
substantial additional resources, and its governance is to be reformed to
give more room to the emerging economies. It will also carry out, together
with the FSB, the enhanced monitoring of systemic stability. The FSB is
leading the reform of the regulation and supervision of the financial
system, even though it remains to be seen whether this will lead to a truly
global framework. But this may not be enough. If not, the BWII system will
have to rely, even more so than in the past, on open markets for both trade
and investment, which will also require stronger global governance and
stronger institutions.
186 | PIER CARLO PADOAN
A stronger post-BWII world is in the interests of Europe. How can
Europe contribute to the post-BWII world, and what role should Europe
play in reformed international institutions?
2.
Keeping markets open in investment and trade
The post-BWII world should be based on more open economies and on
stronger long-term capital flows. For this to happen we need a ‘global
investment regime’ based on shared regulation and standards related to
investment activity so as to complement the FSB’s sound ‘financial regime’
and the IMF’s stable ‘macroeconomic regime’. Investment will go where
there is a transparent relationship with governments and where the cost of
doing business is low, where sound corporate governance prevails, where
there is no corruption, where reliable and possibly cheap skills are
available, where a level playing field does not discriminate against foreign
companies, where competition policy lowers barriers to entry and supports
innovation and where a free flow of goods and services complements
investment flows.
But such a regime does not yet exist globally, and an agreement
between all major economies, both developed and emerging, on these
points still needs to be established. Such a regime would require an
institutional framework to update and monitor rules and standards that are
shared by all the major players. From this point of view, what is needed for
the post-BWII world is an enlarged and reinforced OECD, for the OECD is
the only international organisation that brings together all the expertise
needed for a global investment regime to operate effectively, whether alone
or in collaboration with other international organisations. The present-day
OECD would clearly have to expand its membership to all major emerging
economies so that a new regime can be built on a shared view of the postBWII world. Europe should act forcefully to expand the role and
membership of the OECD.
Let us turn to trade. At the time of writing, we still do not know what
will happen to the Doha Development Round and whether multilateral
trade negotiations will be successfully concluded. Whatever the outcome, it
is generally acknowledged that over the next few years trade relations will
be dominated by a proliferation of bilateral and regional agreements
known as PTAs, or preferential trade agreements. To date, over 200 of these
have been signed, of which many share a common feature – a focus on
those areas that have remained outside the mandate of multilateral
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 187
negotiations, i.e. services, intellectual property rights, investment,
competition policy. In a context where both growth and competitiveness
are increasingly based on innovation and the dissemination of knowledge,
as well as the development of global value chains through relocation and
outsourcing, these areas define the terms of global competition. In other
words, whatever the fate of the Doha Round, both Europe and other
countries will have to define policies to support growth on the basis of
preferential agreements while leaving open, and possibly strengthening,
the prospects for a multilateral agreement.
In recent years the European Union has been, at least in part, an
agenda-setter in international trade; if and when it chooses to do so, its
impact as a single entity is by far greater than the sum of its parts.1
Europe’s single voice on trade has prevailed, also in the presence of
different national preferences linked to different national specialisations
(on agriculture, textiles, advanced services, etc.) and different approaches
to the organisation of national welfare systems. In multilateral negotiations
Europe is a member of the G4 along with the United States, India and
Brazil, i.e. a member of the group that during the critical phases of the
Doha Development Round attempted to hammer out an agreement.
Global trade architecture today bears a significant European mark, as
does the architecture of regional agreements, and Europe’s commitment to
a gradual opening of markets remains intact (regardless of the CAP).
Should global imbalances not be settled adequately, one cannot however
rule out Europe displaying some propensity to protectionism too,
especially in conjunction with lasting euro appreciation and as an illadvised response to the request for security that is currently being
expressed by European citizens who are fearful of globalisation.
Europe has defined its own strategy for a trading system where PTAs
prevail. In December 2006, the European Commission launched its ‘Global
Europe’ Communication, which defines guidelines for the Union’s trade
policy in a framework of proliferating regional and preferential
agreements, where topics not taken up by the Doha Round are going to
become increasingly significant. The document clearly defines European
philosophy in this context:
1
See Lamy (2004).
188 | PIER CARLO PADOAN
Our core argument is that rejection of protectionism at home must
be accompanied by activism in creating open markets and fair
conditions for trade abroad. (...) There are two core elements in
pursuing this agenda: stronger engagement with major emerging
economies and regions; and a sharper focus on barriers to trade
behind the border. (European Commission, 2006, p. 6).
The message is clear and the line adopted echoes the ‘strategic trade
policy’ principle that emerged in the eighties, when non-tariff barriers and
market access policies became increasingly relevant.2
What remains to be seen is how this strategy will be implemented,
and whether it will indeed lead to more openness and integration. Among
the many possible future scenarios, the one in which this strategy is used to
consolidate transatlantic integration, especially in the field of market access
regulation, and where a shared vision of competition policy helps define
technical standards, would clearly yield such a ‘critical mass’ of
harmonisation as to become a standard-setter for all international trade
relations. Moreover this strategy could be used more closely to involve new
players in international governance.
This is all the more important in the framework of the response to the
global crisis. The protectionist responses to the crisis that were feared have
been very limited or non-existent. As we move forward in a protracted
slow growth scenario, however, and with massive unemployment ahead,
pressures for protection may be on the rise and it should be Europe’s role
and interest to resist them. But in order to resist protectionism effectively a
convincing growth strategy must be designed and implemented.
3.
Europe and the United States as ‘global regulators’?
Open capital markets require stability. The response to the financial crisis
has triggered a massive action to reform financial market regulations on a
global scale. Yet, in spite of significant efforts led by the Financial Stability
Board and supported by the G20, it is highly unlikely that at the end of the
process we will see the rise of a single global regulatory and supervisory
system.
2
See discussion in Guerrieri & Padoan (1988).
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 189
In principle one should expect that moves towards this scenario
could be led by a joint US European initiative. The United States and
Europe together account for 40% of the world’s GDP but they generate 80%
of all regulation. Their converging on the definition of standards and
institutional architecture would decisively impact world market regulation.
Considering the role increasingly played by investment from emerging
economies, financial and otherwise, defining a global regulatory
framework would be key to supporting a multilateral framework and
resisting the temptation of protectionism in investment. Is this in Europe’s
interest and capacity?
As noted by Becht & Da Silva (2007), the 27-member state European
Union boasts the largest banking sector, the largest insurance industry and
the largest payments system in the world. It also has the largest private
market for fixed rate securities, and its derivatives and equity markets are
comparable to those of the US. Despite this, Europe’s influence as a major
player in financial system regulation remains limited. In this field, as in that
of monetary relations, Europe’s voice appears to be weak and fragmented.
In this area too, unexploited externalities require a single regulatory policy.
The technical difficulties involved in defining joint regulatory
standards should not be underestimated, especially in light of the fact that
regulation is per se a complex endeavour that concerns a variety of
different fields, ranging from investor protection to technical standards,
market supervision, and combating financial crime. But, as pointed out,
Europe would have the ‘critical mass’ not only to identify common
standards but also to gain their acceptance as global standards, all the more
so if these standards were shared with the United States.3 At the same time,
a regulatory framework developed at the behest of the world’s leading
economic areas would be the most effective antidote to the (possible)
political and ‘non-market’ use of resources controlled by SWFs. It would be
a major contribution to the establishment of a sound ‘investment pillar’.
Before the outbreak of the crisis, what was standing in the way of
deeper cooperation between the US and Europe in this area was, on the EU
side, the inability of European countries to overcome national visions,
define European interests and policies, and to identify common rules for
One limited but instructive example concerns accounting standards. European
standards in this field are in the process of becoming global (see Veron, 2007).
3
190 | PIER CARLO PADOAN
the European market. Faced with this problem Europe’s response has been:
harmonisation where possible and mutual recognition, otherwise. But even
mutual recognition, tantamount to a multiplicity of bilateral agreements, is
not a workable solution if it is not supported by efficient implementation
and enforcement, putting all participating countries on an equal footing.
Despite a push to complete a European financial market under the
Financial Sector Action Plan, gaps and redundancies still remain in the
governance of Europe’s financial stability, with over 80 agencies involved
in financial market supervision and regulation. This is an obvious case of
inefficiency that increases compliance costs for intermediaries.
Despite all these limitations, financial market integration has been
moving on. Through a market-led process, a ‘European bias’ has slowly
emerged in EU financial markets following the introduction of the euro and
the subsequent removal of exchange rate risks, not to mention regulatory
harmonisation and product-market integration. Intra-European Union
cross-border capital flows have increased significantly. London has become
the inter-bank market hub and this has, inter alia, elicited ever more UK
investor interest in the euro. Finally, eurozone intermediaries are funding
investment in the new member states.
Even before the crisis the general context was tending to push
towards greater integration and increased uniformity in regulatory
systems. New players emerging, not only in trade but increasingly in
financing and investment, would have speeded up the identification of a
shared European interest in participating, alongside the US and new
members, in the definition of a regulatory framework tailored to the
demands of globalisation.
The crisis has changed the scenario dramatically, accelerating it but at
the same time showing the limits of European action. As a response to the
crisis both the US and Europe have launched ambitious reforms of financial
regulation and supervision within the G20 process. While these reform
processes are independent, they do present a number of similarities, as well
as inevitable differences.4
4 For a more detailed analysis, see Masciandaro & Quintyn (2009) who also show
how, in the decade before the crisis, EU regulatory retro at the national level has
proceeded but moved towards increasing divergence.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 191
Both reform blueprints present proposals that are based on very
similar if not identical principles: stronger bank capital requirements, less
pro-cyclicality, more control over rating agencies, a more relevant role of
the concept of ‘fair value’ in accounting procedures, ‘parallel’ market
institutions such as hedge funds and private equity have to be made more
transparent and subject to regulation, OTC derivatives should be
intermediated through clearing systems, managers’ compensation must be
tied to long-term performance, more effective crisis resolution mechanisms
must be put in place, fragmentation in regulatory architecture must be
reduced and central banks must be given more power in surveillance while
a stronger role must be played by the Basel Committee, the Financial
Stability Board and the IMF.
There are, however, also significant differences. Starting from the role
assigned to central banks. The Federal Reserve has full responsibility of
surveillance of the financial firms, both banks and non-banks, which have
systemic relevance and can affect the stability of the system. The European
Central Bank is assigned the more limited role of ‘hosting’, coordinating
and chairing the European Systematic Risk Council (ESRC) which is made
up of the members of the ESCB (European System of Central banks), the
European Commission, and the chairs of the three authorities set up
following the recommendations of the Lamfalussy report: the European
Banking Authority (EUA), the European Insurance Authority (EIA) and the
European Security Authority. The ESRC will have only macro-prudential
responsibility looking at the system’s overall stability, while micro
prudential oversight will remain with the single national authorities. It will
only be able to issue recommendations related to systemic aspects of
stability. Its governing power will be limited to say the least. The US has
also created an authority to oversee surveillance, the Financial Service
Oversight Council, which includes the Fed, the US Treasury and other
surveillance authorities. The Secretary of the Treasury will have a
coordination role of both macro and micro surveillance.
In case of financial turbulence the different degrees of coordination
could well prove essential. It is true that at the peak of the financial crisis
Europeans showed an exceptional degree of coordination in facing the
emergency. However, this ad hoc response required exceptional
circumstances and can hardly be taken as a model for more effective
governance.
192 | PIER CARLO PADOAN
A third difference is related to the creation of an agency for consumer
protection in the US, the Consumer Financial Protection Agency, which
will oversee products and processes in the credit, savings and payment
system segments.
Finally, it is important to note that in neither of the two jurisdictions
do we see a full consolidation of surveillance structures. The European
System of Financial Supervision, which includes EBA, EIA and ESA, as
well as the national surveillance authorities, is only a network of
decentralised structures. Daily surveillance will remain with national
authorities that are closer to the intermediaries. The EU-level agencies will
act as standard setters and coordinate their implementation. The US will
maintain six authorities in addition to the Fed and Treasury (the SEC, the
National Bank Supervisor, the Commodity Futures Trading Commission
the Federal Deposit Insurance Corporation and the Federal Housing
Finance Agency).
To conclude, while both strategies fall short of full reform and take
with them considerable institutional inertia, the European strategy suffers
more deeply from such inertia, and we are long way from a truly European
system of surveillance, which goes along with a still largely incomplete
financial market integration. This suggests that in post-BWII there will still
be regulatory differences among jurisdictions, and arbitrage. In short, a
reformed US financial system will most probably prove to be the best
option for global capital flows, looking, as in the past, for profitable and
politically reliable investment opportunities.
4.
Macroeconomic governance
Macroeconomic relations are different from trade relations but similar to
financial regulation, with European presence largely devolved to
individual states. There are four EU member states in the G8, but it would
be hard to contend that the G8’s agenda is clearly set by the Europeans. A
similar yet even stronger case can be made for the G20. Attempts at reform
of macroeconomic governance have been launched in the recent past. In
trying to deal with global imbalances, and in the context of its MediumTerm Strategy review, the IMF has introduced an informal consultative
group made up of the US, Japan, the eurozone, Saudi Arabia and China, i.e.
all the major players in global imbalances, including those who are not G8
members.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 193
Ever since the issue of global imbalances came to the fore, the
International Monetary Fund has supported a coordinated adjustment
strategy which, in line with official G7 statements, provided for a cut in
public deficits and an increase in private savings in the US, more exchangerate flexibility in Asia (and especially in China), structural reform in Europe
and Japan to increase growth potential and more spending and absorption
capacity in oil-producing countries. The IMF in this context was to
implement more effective surveillance, both multilateral and bilateral, in
individual countries,5 with particular focus on those where performance
has systemic implications. The crisis has shown that this initial attempt was
not successful. At the time of writing, the G20 has called for a more
coordinated and long-term oriented surveillance mechanism to ensure
balanced and sustained global growth, where the IMF should play a
leading role.
It is too early to say if the proposal will be implemented and if it will
be effective. It is difficult to deny that, if more effective coordination among
key players, including Europe, does not take place, the issue of managing
payment imbalances and global growth will be addressed within US-China
bilateral relations, with Europe (or rather, the eurozone) adopting an
attitude of (benign?) neglect.
The time is also ripe for a rethink of the relationships between major
currencies, as is necessary in a post-BWII scenario. Changing this
relationship requires both flexibility and orderly burden-sharing in the
adjustment and transition to a new monetary regime. Several measures are
on the table that would, for instance, link the Chinese yuan to a basket of
currencies, or identify ‘target zones’ or allow for the Chinese exchange rate
to be fully flexible and even promote the role of the yuan as a global
currency. Whatever the solution, the crux of the matter is that the eurozone
should define its position much more clearly and uphold it in multilateral
and bilateral fora. Europe’s limited voice in this respect runs the risk of
being interpreted as a lack of interest or worse still, as passivity in the face
of events. All of this also suggests that Europe, or at least the eurozone,
5 This is the thrust of a recent revision in the IMF’s terms of reference for
surveillance, under which the Fund is explicitly entrusted with monitoring
exchange rate regimes.
194 | PIER CARLO PADOAN
should opt as soon as possible for single representation in international
financial institutions and in unofficial groupings (such as the ‘G’ summits).
Both the IMF and the World Bank are governed by boards on which
24 members sit with different share holdings, representing 185 countries.
The United States has the single largest share, with a little over 17%. Taken
together member states of the European Union have a larger share than the
US. France, Germany and the UK represent a single country constituency
each. The other European Union member states are distributed over six
other constituencies, and in several cases also hold the executive director
positions. The Fund and Bank boards operate on a consensus basis. This
means that what happens upstream, most often in the framework of the
G7/G8 for the advanced economies and the G11 for emerging economies
(including China), and possibly in the G20 from now on, is of essential
importance in establishing consensus. Although they do not have an
absolute majority, historically G7 countries have had a predominant
position in the decision-making process. In recent years, European
countries have also developed a coordination method, in Brussels and in
Washington, on the basis of which some of their board decisions are taken
jointly. Interaction between the G7 and the European coordination group is
complex, sometimes fraught, and at times European members of the G7
have upheld positions different from those of other EU governments.
A single EU, or at least eurozone, representation in international
financial institutions would increase Europe’s clout in global governance
while at the same time improving global governance by enhancing the
involvement and accountability of new emerging economies. A single EU
(or eurozone) representation, if set on the same level of the US, would
command more authority than the current sum of EU representatives6
while at the same time making space available for a larger share of
emerging economies. But there is more to this. Europe is currently faced
with a paradox. Computing Europe’s weight as a ‘swing-voter’, one can
conclude7 that if Europe were to speak as one voice, it would carry the vote
6 Adding the current shares held by individual EU member states yields a figure of
about 30%, but if eurozone countries were to go for single representation, the sum
of their shares would have to be corrected for intra-zone trade, which is currently
taken into account. See Bini Smaghi (2006).
7
Ibid. (2006).
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 195
in practically all cases. But, and therein lies the paradox, Europe has so far
proved largely incapable of using its economic and political clout in global
governance, precisely because it has spoken with multiple voices.
Why hasn’t Europe taken the decisive step towards single
representation? Two possible explanations can be offered, which are partly
complementary: different preferences and dysfunctional governance.
Differences in national macroeconomic policy preferences would stand in
the way of European countries arriving at joint positions in international
fora just as different trade policy preferences would weaken EU positions
in WTO negotiations. This assumption is not very convincing if we think to
the euro, which implies a single monetary policy, regardless of the fact that
a single monetary policy may at times yield differing outcomes in different
eurozone member states. One could argue that having single IMF
representation would imply speaking with one voice, also regarding fiscal
issues, a field that has remained the purview of individual member states.
But this is not a fully convincing argument either. On the one hand the
Stability and Growth Pact requires fiscal policy convergence and shared
policy criteria for all countries. On the other, through surveillance the IMF
is already assessing the euro area’s fiscal policy both in terms of internal
consistency and operation, and in terms of global macroeconomic impact.
This leads us to the dysfunctional governance or decision-making
inefficiency assumption.8 Regarding macroeconomic relations, this
describes EU countries’ difficulties in identifying an internal decisionmaking mechanism that would yield joint positions in international fora.
Put differently, there is no point in setting up single representation with the
IMF if the executive director for Europe is not given clear and timely
guidance by his or her authorities (while executive directors for individual
European countries do receive such guidance from their capitals). Up to
now there has been no such handing over of sovereignty and many
European governments remain opposed to concrete steps that might lead
to single representation. The reason this is not happening is simple. Moving
to single representation would involve redistributing power within the
European countries group. The larger countries would need to relinquish
part of the clout they currently wield including in G groups, whereas
smaller countries (who are not G7 members and are therefore fearful of
8
See Pisani-Ferry (2005).
196 | PIER CARLO PADOAN
losing even more visibility and voice) are even more fearful of ceding
power to larger countries.
Pressure for single representation (or rather, single voice) is
nevertheless increasing. This stems first of all from the changes that have
occurred globally. Shifts in economic power and the move to regional or
bilateral governance models have reduced the clout of individual European
countries, none of which can aspire to global player status. Pressure comes
equally from the fact that single eurozone representation in financial
institutions would free up space to increase the shares assigned to new
emerging economies, thereby allowing for their increased involvement and
consequently for more balanced international relations governance, which
would facilitate the reform of the said institutions. Such a goal should be in
the European Union’s interest. Asian countries, including China, would
carry more weight but also more responsibility as shareholders. And it
would be easier to involve China in multilateral solutions, including those
aiming to correct global imbalances, if responsibility for their management
were more equitably shared. The response to the financial crisis has
significantly added to this pressure.9 While it is still too early to see how the
process will evolve it is important to note that pressure for a single Europe
voice is very strong from countries outside Europe, most notably the US,
with the purpose of giving more voice to emerging economies.
Pressure, thirdly, stems from the role of the euro. The single
currency’s weight as a key currency is on the rise, regardless of what
monetary union member states may wish. The euro is increasingly being
used as an invoicing currency for trade among and between third party
9 The G20 document on IMF reform states: “G20 members should call for
meaningful reform to bring the Fund’s governance structure in line with the
realities of today’s global economy in order to strengthen the Fund’s legitimacy
and effectiveness. In London, G20 Leaders agreed that emerging and developing
economies, including the poorest, should have greater voice and representation.
(… ) The Fund’s governance structures – specifically the Executive Board and the
IMFC – should reflect the realities of today’s global economy. (…..) A smaller,
more streamlined Board has the potential to increase Board effectiveness.”
Accordingly, G20 members might support returning the number of Board seats to
the 20 envisaged in the IMF Articles, while preserving the number of chairs held by
emerging market and developing countries (italics added) , as one measure to improve
the contribution of such countries to IMF Board decision-making.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 197
countries, as a denominator for financial transactions, as a reserve currency
held by third party countries. Finally, this is instrumental to making the
euro area increasingly attractive as a location for foreign investment, all the
more so with the setting up of SWFs by emerging economies. This raises
the issue of defining a common policy regarding both macroeconomic
relations and the supervision of financial markets, consistent with the
establishment of a strong investment pillar in post-BWII.
Fourthly and finally, pressure is coming from the EU’s enlargement.
This provides not only for new member states adopting the euro, but it also
implies that ‘euro-isation’ phenomena will proliferate more or less
explicitly in countries wishing to join the Union or somehow coming under
its economic influence. This strengthens the need for a ‘key currency’ policy
that has repercussions on relations with other currency zones.
5.
Conclusions
Globalisation implies growing interconnection between markets and
growing policy interdependence: in trade, in investment, in the supervision
and regulation of international financial markets, and in monetary
relations. The global crisis has brought to light significant governance
failures in most if not all such policy areas. So a durable response to the
crisis and a return to sustainable and balanced growth requires stronger
global governance. This, in turn, requires agreement and shared
responsibilities of all major players, including emerging economies, and a
new role for Europe. In Europe, competition and trade policies have been
entrusted to the European Commission, Financial market policy has so far
mainly been dealt with nationally, and macroeconomic policy comes under
the jurisdiction of the Eurogroup Finance Ministers. The global financial
crisis has produced a dramatic acceleration in global governance. Europe
can take advantage of the crisis response to strengthen its voice in
international fora and contribute to a more balanced global economy: an
objective that should be in Europe’s firm interest. If this opportunity is
missed there might be a loss of European influence in international
economic relations over the long term. Europe’s influence is, in any case,
set to decline further as the relative weight of individual European
countries also declines, in addition to that of the EU as a whole.
Contributing to shape a global investment regime, speaking in a single
voice in monetary and financial matters, in addition to trade policy issues,
would not only provide Europe with more clout, but would also force the
198 | PIER CARLO PADOAN
Europeans to devote more energy to figuring out where their interests lie in
the global system, and what can be done to further them.
Despite the institutional and substantive differences in different
policy areas, Europe’s difficulties in identifying a common and effective
economic policy harken back to a common trait that stems from the very
principle at the root of its recent history. Europe’s economic policy was
devised as a mechanism to achieve a common goal, in terms of growth and
welfare through increased internal integration. And this continues to obtain
as Europe’s policy takes on an external dimension, as is the case with trade
policy. This mechanism assigns a central role to national preferences and
works best when such preferences can converge in the definition of a
‘European preference’. But that is precisely the point. If in the post-war
years a European preference could be defined, keeping in mind internal
goals such as peace among member states and economic welfare, Europe’s
preferences must necessarily be defined differently in the new global
environment.
References
Becht, M. and L. Da Silva (2007) “External financial markets policy. Europe
is a global regulator?”, in A. Sapir (ed.), Fragmented Power: Europe and
the Global Economy, Brussels: Bruegel Books.
Bini Smaghi, L. (2006), “IMF Governance and the Political Economy of a
Consolidated European Seat”, in E. Truman (ed.), Reforming the IMF
in the XXIst Century, Institute for International Economics,
Washington, D.C.
European Commission (2006), Communication on Global Europe:
Competing in the world, Brussels, December.
Guerrieri, P. and P.C. Padoan (1988), Libero scambio, protezionismo e
concorrenza internazionale, Bologna: Il Mulino.
Lamy, P. (2004), Trade Policy in the Prodi Commission: An Assessment,
November
(http://trade-info.cec.eu.int/doclib/docs/2004/
november/tradoc_120087.pdf).
Masciandaro, D. and M. Quintyn (2009), Reforming Financial Supervision and
the Role of Central Banks: a Review of the Global Trends Causes and Effects
(1998-2008), CEPR Policy Insight No. 30, Centre for Economic Policy
Research, London, February.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 199
Pisani-Ferry, J. (2005), “The Accidental Player: The EU and the Global
Economy”, prepared for a lecture at the Indian Council for Research
on International Economic Relations, Delhi, 25 November.
Veron, N. (2007), The Global Accounting Experiment, Brussels: Bruegel
Blueprints No. 2.
PART III
THE INSTITUTIONAL FRAMEWORK
11. FROM A COMMUNITY BASED ON THE
RULE OF LAW TO THE EUROPEAN
UNION AS A COMMUNITY OF RIGHTS
MARIO P. CHITI
1.
A community based on the rule of law
Outside institutional and legal circles, few are aware of one of the more
relevant and forward-looking definitions once given to the European
Economic Community (EEC): “a community based on the rule of law”. Its
author, the first President of the European Commission, Walter Hallstein,
mentioning it in a 1965 debate at the European Parliament, intended to
apply the gist of the RechtsStaatsPrinzip to the recently established
European public authority. At the same time, he also wanted to underscore
the fundamental and unprecedented role played by law, the keystone of
the EEC, thus characterised in a totally original fashion as compared with
states and the international organisations that had come before it. The
Community did not then have, nor does it have today, its own power of
coercion; as summed up by Jean-Victor Louis (1989) in a groundbreaking
study of Europe’s legal system, “the law it develops is its only force”.
The idea of a community based on the rule of law was one that
underpinned the constitutional case law of the Court of Justice throughout
the 1960s. It later took hold in explicit terms in the ruling for Parti ecologiste
“Les Verts” v. European Parliament (case 294/83, 23 April 1986) and became a
constant connotation for all European Community/EU institutions in
subsequent case law.
Forty years later, Biagio de Giovanni (2002), in order to explain
“Europe’s ambiguous power”, referred to “the law, laws, and then rights,
and the connected principle of the humanity of man”. Similarly, Tommaso
Padoa-Schioppa – at the time not yet burdened by government office –
| 201
202 | MARIO P. CHITI
published a 2001 collection of essays under the title Europa forza gentile in
homage to Scotsman David Hume, who first introduced the concept of
gentle force, and with a view to defining the European Union as a public
authority exclusively based on voluntary acceptance, the sharing of a novel
“supranational sovereignty” and the renouncing of coercion.
The road travelled over the 50 years since the first Rome Treaty –
preceded by the essential although to date unknown threading of European
integration through the European Coal and Steel Community, a genuine
supranational organisation despite its mission-oriented mandate – would
indeed have been to Hume’s liking and to that of his Enlightenment
contemporaries. It has led to an outcome involving a claim to a single legal
space, centred on freedom, security and justice, to be implemented through
a united Europe (a fundamental goal for the Treaty on European Union
(TEU), Art. 2.1). In just a few years, this outcome has attracted in an
apparently irreversible way states long governed by dictators or shaken by
democratic crises, or left for a number of decades on the far side of
Europe’s wall.
Clearly, the European integration process has been neither linear nor
constant. On the contrary, it has had its moments of stasis and very genuine
crises (especially in the wake of the 2004 Constitutional Treaty), and has
constantly evaded the rigid framework of institutions and principles.
Despite these limitations – or better yet, features, as there appears to
be no benchmark for the EU’s development, a truly unprecedented
experience – Hallstein’s insight has certainly been proven true, and the
community based on the rule of law has played the role of a ‘gentle force’
and does so to this day.
How did this come to pass with no bill of rights, without Community
or Union primary law having anything resembling a catalogue of rights?
How do things stand today, and what is likely to occur now that the Lisbon
Treaty has entered into force? Such are the questions this chapter intends to
address, however briefly.
The interpretation offered here – and explained in the following
sections – is that the features of the European Community (EC) and then
the EU, along with the specific constitutional traditions of European states,
have had direct consequences for individuals’ fundamental rights.
Regarding the nature of the EC, its qualification as a community based on
the rule of law not only implies that its institutions and member states are
subject to judicial review on the compliance of their laws and regulations
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 203
with the basic constitutional charter that is the Treaty, but also that
individuals’ rights (and obligations, obviously) may under certain
conditions directly derive from this same source. Individuals come directly
under the new legal system, as subjects thereof, and this makes the system
stand apart from all other international legal systems. The EC of course
operates in a context of highly ‘constitutionalised’ European states –
especially following the dramatic events of the Second World War – where
fundamental rights are seen as an inalienable constitutional heritage, early
on (from 1950) transmuted into a shared heritage through the Council of
Europe’s European Convention on Human Rights (ECHR).
An inherent characteristic of the EC/EU system is that individuals
can assert rights directly and immediately, starting clearly with
fundamental rights, vis-à-vis their respective states (the judges of which are
obliged to apply relevant EC law) and European institutions. As the Court
of Justice summed up in its most recent ruling in this field (case C-305/05,
Belgian Bar Associations v. Council of Ministers, 26 June 2007), “fundamental
rights form an integral part of the general principles of law whose
observance the Court ensures, drawing inspiration from the constitutional
traditions common to the Member States and in particular the Rome
Convention”.
2.
Issues posited in the original 1957 EEC Treaty
The 1957 EEC Treaty assiduously avoided any reference to fundamental
rights and liberties, in accordance with functionalist criteria that sought to
achieve as much as possible in concrete terms without strong institutional
or political premises, whose time was deemed not yet to have come.
This same Treaty nevertheless provided for the economic liberties
essential to the emergence of the single market (establishment, circulation,
etc.), which were soon to be viewed by the Court of Justice as genuine
constitutional freedoms.
In addition to these functional freedoms required for the common
market, the Court of Justice set out to mark the absolute originality of the
EEC (destined to increase further with the later shift to the EC and the
subsequent establishment of the EU) through the case law it developed in
the early 1960s. Notable in this respect is the Court’s claim (in case 26/62,
Van Gend & Loos v. Netherlands Inland Revenue Administration, 5 February
1963) that not only states but also their citizens are the subjects of
Community law, and that the Community system is more than just an
204 | MARIO P. CHITI
agreement setting up reciprocal obligations among contracting member
states, because of the direct repercussions on Community subjects.
The individuals mentioned by the Community judges cannot but
have rights with respect to the Community, in addition to those they have
with respect to member states. This stance was taken with the knowledge
that the ever-growing sphere of Community law leads to legal situations
regarding individuals and that these individuals may invoke the principle
of direct effect (another original creation of the Court of Justice) in order to
have such situations appropriately taken into consideration by national
judges.
With economic liberties equated with fundamental rights and an
increasing number of rights deriving from Community law (considered in
the broader acceptance specific to European law, as legal situations
entailing benefits), the new legal system could no longer avoid re-positing
the issue of fundamental rights, as had the constitutions of the last two
centuries in various states.
The method adopted by the Court of Justice for the definition of
“general principles of Community law” followed this same orientation –
and one cannot overstress the fundamental role played by the institution in
the development of the legal grounding for European integration,
unparalleled in any known legal system. This method centred initially on
the identification of legal traditions common to member states. Clearly, in
identifying such general principles – source law with cogent legal force – in
the legality principle, the finality of law, equality and other principles as
well, the Court was moving progressively closer to the issue of
fundamental rights. These were indeed an essential part of the common
constitutional traditions of member states, furthermore asserted by the
Council of Europe’s ECHR, to which all EU member states had acceded.
It was therefore not unexpected that the Court of Justice should state,
as of 1969, in Erich Stauder v City of Ulm (case 29/69, 12 November 1969),
that “the fundamental human rights [are] enshrined in the general
principles of Community law and protected by the Court”. As of a
subsequent ruling, in Internationale Handelsgesellschaft mbH v Einfuhr- und
Vorratsstelle für Getreide und Futtermittel (case 11/70, 17 December 1970),
this position became a constant in the case law of the Court of Justice.
As pointed out by Federico Mancini (1989), “reading in Community
law an unwritten Bill of Rights thus constitutes the most incisive of the
Court’s contributions to the development of a Constitution for Europe”.
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 205
The Court was not solely interested in the development of
individuals’ rights, however, knowing that an essential aspect of its
innovative case law concerned the ‘communitarisation’ of a significant part
of national constitutional law, while stressing the ‘primacy’ of European
law and of the integration process of national and European legal systems.
This is already evident in the abovementioned Internationale
Handelsgesellschaft ruling, which reads “that the protection of fundamental
rights, whilst inspired by the constitutional traditions common to the
member states, must be ensured within the framework of the structure and
objectives of the Community”. Otherwise, recourse to the legal rules or
concepts of national law “would have an adverse effect on the uniformity
and efficacy of Community law”.
3.
Developments subsequent to the 1992 EU Treaty
With the establishment of the EU in 1992, fundamental rights (inevitably
one could say) were to find acknowledgement in the Maastricht Treaty.
After the Preamble’s confirmation of the “attachment to the principles
of…respect for human rights and fundamental freedoms and of the rule of
law”, Art. F (now TEU Art. 6) asserts that the EU is based on the
aforementioned principles.
But with the shift in the appraoch to the issue of fundamental rights
away from one essentially based on case law and towards a
constitutionalisation of these same rights in the EU Treaty, problems
deriving from their triple dimension (national, EU and ECHR) were to
come to the fore, along with issues of enforcement. One should bear in
mind that so far, the EU has not acceded to the ECHR, partly because of the
Court of Justice (which stated in opinion 2/94 that there was no jurisdiction
for accession to the ECHR, an expression of a different international legal
system). In addition, fundamental rights are acknowledged as part of the
“general principles of Community law”, with a specific location in the
sources of the legal system, and member states’ constitutional courts have
been reluctant to renounce their authority over the protection of
fundamental rights (recent rulings 348 and 349/2007 of the Italian
Constitutional Court are a case in point, as analysed in greater detail
below).
The solution found to these problems was the convening of a
Convention, a special ad hoc body, unprecedented in European law, the
very name of which was redolent of a glorious constitutional past.
206 | MARIO P. CHITI
Although not yet imbued with the significant distance vis-à-vis the
‘intergovernmental method’ that was to be the hallmark, soon after, of the
Convention that in 2003 produced the Treaty establishing a Constitution for
Europe, this first Convention worked quite autonomously from member
states and produced a text of considerable significance.
The Charter of Fundamental Rights of the European Union signed in
Nice in 2000 – although controversial and on some counts, such as its final
“general provisions”, unconvincing – bears witness to the evolution of a
number of ‘first generation’ rights: the right to engage in work is
supplemented by the right to seek employment and to pursue a freely
chosen occupation (Art. 15). The Charter also formalises rights that have
emerged in recent decades (such as the protection of personal data, in Art.
8; the rights of the child, in Art. 24; and the rights of the elderly, in Art. 25),
and reasserts original rights, such as rights vis-à-vis public administrations
(Art. 41, on the right to good administration), that give substance to EU
citizenship.
The atypical nature of the Charter drafting process was mirrored by
an equally atypical adoption, eschewing the forms provided for by the
Treaties, with an unprecedented “proclamation” on the part of the
European Parliament, the Commission and the Council in December 2000.
After the negative epilogue of the 2004 Constitutional Treaty, a number of
formal changes were introduced and in November 2007, the revised
Charter was adopted by a huge majority in the European Parliament. In
another atypical development, it was then once again “proclaimed” in the
Plenary Hall of the European Parliament by the Presidents of the
Parliament, the Council and the Commission.
As expected, the Charter’s originality – as a constitutional seal
appended to the new EU – elicited resistance and reactions. Indeed, no
specific value was ascribed to it and its insertion into the 2004
Constitutional Treaty, of which it formed Part II, contributed to the
subsequent crisis.
In spite of these difficulties, one could easily foresee that the Nice
Charter was to represent an irreversible outcome, and a part of the
Community acquis. It may not be binding, but advocates-general have often
referred to it with a view to substantiating their conclusions; court judges
have deemed it to be ‘a source of inspiration’; national courts have on
occasion made reference to it to corroborate their rulings; and the Italian
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 207
Constitutional Court has acknowledged its interpretative significance
(ruling no. 349/2007).
4.
Roles played by the Council of Europe and the European
Convention on Human Rights
In parallel with developments in the EU, the role played by the European
Court of Human Rights, designed to guarantee the rights addressed by the
ECHR, has considerably strengthened.
Following the 1994-99 reforms, the Strasbourg Court has become
more accessible to individuals and the range of issues it addresses has
broadened. The outcome of this has been particularly significant with
respect to states that have acceded to the ECHR, but on many points they
are still far from full compliance. The case of Italy is especially telling: over
recent years it has been ‘obliged’ to reform Art. 111 of its Constitution on
‘fair trial’, introduce subsequent legislative innovations (such as law no.
12/2006) and change its stance radically on property rights and
expropriation. (This last matter has for the time being been concluded with
the 29 March 2006 Scordino ruling of the Strasbourg Court and
Constitutional Court ruling nos. 348 and 349/2007.)
The ECHR appears to be a wedge driven between the Nice Charter
and national constitutions. As regards EU law, the issue is not so much one
of differing approaches (although that is partly the case) but rather the role
played by the Strasbourg Court, and its crowding out of the Court of
Justice. The latter’s case law attempts to combine the outcomes of the
former with its own, autonomous approach, but the end-product is not
always convincing. In any event, the Court of Justice has to consider the
Strasbourg Court’s case law as a given, insofar as the latter has sole
jurisdiction over interpretation of the ECHR.
More significant problems emerge in conjunction with national
legislation. The Italian case is typical in this respect, as a number of glaring
asymmetries have appeared, despite efforts to demonstrate that the ECHR
is substantively in line with corresponding national provisions. The most
obvious example is that of property rights and expropriation powers,
where various segments of Italian legislation – on many occasions deemed
compatible with Art. 42 of the constitution – have appeared to conflict with
property guarantees provided for in the ECHR (in Art. 6 and in Art. 1 of the
1952 Additional Protocol). To put it briefly, while the constitutional rule on
property also expounds on its ‘social function’ and authorises various
208 | MARIO P. CHITI
adaptations regarding modes of acquisition and use, the ECHR – as
interpreted by the Strasbourg Court – does not allow for fragmented
protection of property rights.
Yet the relevance (and primacy) of the ECHR is not matched, in the
Italian legal system, by a formal role, and the ECHR was inserted into the
system through a regular adaptation law, as is the case with all
international treaties. Although the ECHR addresses issues that are
objectively constitutional (fundamental rights, for instance), until the
reform of the Constitution’s Art. 117.1, one simply could not raise serious
questions about the specificity of the ECHR in comparison with other
international obligations. Only recently have some judges, in order to
acknowledge the primacy of the ECHR, attempted to stretch general rules
through the construct (of Community origin and specific solely to that
system) of a disapplication of domestic law conflicting with the ECHR’s
provisions. Still, the means chosen do not hold water legally, insofar as
ECHR’s rules cannot be characterised as having ‘useful effect’.
5.
The 2007 Treaty and the recent Treaty of Lisbon
Luckily the system is now moving towards clarification of its more
significant points under the combined impact of European and domestic
factors.
As regards the EU, the Lisbon Treaty includes – in the section
modifying the Treaty on European Union – a number of provisions that
clearly set out the new centrality of the rights issue. A second paragraph
has been added to the Preamble, according to which from the inheritance of
Europe “have developed the universal values of the inviolable and
inalienable rights of the human person, freedom, democracy, equality and
the rule of law”.
Then comes a definite clarification that the Charter of Fundamental
Rights of the European Union “shall have the same legal value as the
Treaties” (Art. 6, replacing TEU Art. 6). The Charter thus remains an
autonomous text with respect to the two new Treaties – thereby
accommodating a mainly British request, aimed at attenuating the
constitutional form of the new EU Treaty. But this may well have a
paradoxically positive effect, insofar as it positions the Charter as
something that comes before and stands aside from the TEU, similar in that
regard to the Bill of Rights in the constitutional system of the US.
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 209
Other elements of clarification concern the EU’s commitment to
accede to the ECHR (Art. 6.2, new) and the (re)-positing of fundamental
rights guaranteed by the ECHR within the general principles of EU law
(Art. 6.3, new).
All issues have not been solved by the Lisbon Treaty (the
enforcement of rights and the role of the Court of Justice, in particular) and
others have emerged (the peculiar in/out position granted to the UK and
Poland, for instance). Even so, European observers are used to compromise
solutions and the new Treaty in any event includes a number of innovative
provisions.
6.
The Constitutional Court in Italy and Europe’s international
obligations
With ratification and the entry into force of the Lisbon Treaty through a
political and institutional process that was less daunting – on paper – than
the one for the 2004 Constitutional Treaty, the most topical and
controversial issue for Italian law has to do with the reciprocal interplay of
constitutional rights and those rights guaranteed by the ECHR, in light of
the aforementioned reform of Art. 117.1 of the Italian Constitution.
The issue was finally addressed frontally by the Constitutional Court
in its rulings of 2007 (nos. 348 and 349), the significance of which are
inversely proportional to their media coverage (discounting the
conclusions regarding expropriation, on which the debate was based),
almost as if fundamental rights were a topic so arcane as to be reserved to
the most exclusive of sects.
The two rulings in question are complex, inter alia because the
general disquisition regarding the scope of Art. 117.1 was entrusted to two
separate rapporteurs who used similar, but not identical arguments. The
rulings are addressed here from the sole point of view of their general
implications.
The Constitutional Court put forth the following main arguments:
a)
At the time of the ruling, the legal system underpinning the ECHR
was still legally distinct from that of the EU (the Court was
nonetheless well aware of the imminent absorption by the EU of the
issue of fundamental rights).
210 | MARIO P. CHITI
b)
The ECHR is legally particular compared with other international
agreements, if only for its uniform guarantee of all fundamental
rights.
c)
The relationship between the ECHR and national legal systems
remains “robustly governed by each national legal system”.
d)
The reform of Art. 117.1 finally fills the gap and “connects, from its
systemic position within the Constitution, to the framework of
principles that even previously guaranteed compliance, at the
primary level, with a number of international obligations taken on by
the State”.
e)
The new provision establishes a flexible reference to the ECHR,
operating as an interposed rule.
f)
The European Court of Human Rights retains jurisdiction in terms of
the centralised interpretation of the ECHR, but in the last resort it
shall behoove the Constitutional Court to check that rules specified in
the ECHR, and referred to on occasion, do indeed provide a degree of
fundamental rights’ protection at least equivalent to that provided by
the Italian Constitution.
Legal arguments are shared on a variety of points, such as the
erroneous use made by some Italian judges of disapplication regarding
domestic laws, and the originality of the new Art. 117.1 compared with Art.
10 and other ‘internationally-geared’ provisions contained in the
Constitution. Overall, however, these arguments give the feeling that the
legal system of the ECHR has been viewed as a variant of international law
that may well be significant, but has been qualified as a mere ‘interposed
rule’ with respect to the constitution. The specific features of the ECHR,
both per se and in light of the use that EU law makes of them, should have
led to the ECHR being slotted in differently from what is the rule for other
international obligations. And the same can be said of the power the
Constitutional Court has retained in terms of “checking that the
appropriate balance is struck between the need to guarantee compliance
with international obligations as set out in the Constitution and that of
ensuring that so doing entails no vulnus for the Constitution proper”.
On the whole, these two rulings leave one with the sense that after
having digested the position taken by the Court of Justice on EU law –
painfully, and only partially at that, as evidenced by the issue of legal
system unitarity – the Constitutional Court decided to retain, as a matter of
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 211
principle, a ‘defensive’ role with respect to rights grounded in the
Constitution. It did so notwithstanding that it will in the end have to accept
the conclusions of the Strasbourg Court, even on issues where the two
approaches are objectively different. Expropriation, which prompted the
two above-mentioned rulings, illustrates the point.
7.
Pending issues
That being stated, there are still a number of unresolved issues and
applicative difficulties within EU law. In the context of the new EU Treaty
(as modified by the Lisbon Treaty), fundamental rights derive from both
the Charter and the ECHR, while also being the product of member states’
shared constitutional traditions. As regards the organisation of source law,
the rights guaranteed by the ECHR and those deriving from common
constitutional traditions are equally part of Union law, as general
principles.
The ensuing model is not blindingly clear. Actually, now that the
revision process has come to a close, on the one hand fundamental rights
provided for in the Charter shall have constitutional rank (the Charter
having been given the same legal value as the Treaties, as noted earlier),
while on the other, rights guaranteed by the ECHR or derived from
common constitutional traditions shall be deemed ‘general principles’, and
therefore not have constitutional rank.
Furthermore, the acknowledgement of the legal value of the Charter
is surrounded by a number of cautionary statements – probably too many.
Among them is the Protocol on the application of the Charter to Poland and
the UK, which states that “whereas the Charter reaffirms the rights,
freedoms, and principles recognised in the Union and makes these rights
more visible, [it] does not create new rights or principles” (emphasis added).
Yet, a number of rights contemplated therein are absolutely novel.
8.
Protecting rights – The EU’s basic remit
However significant these pending problems may be, clearly no legal
system has developed a system entirely based on the rule of law and
guaranteed fundamental rights on a par with the EU. More specifically,
freedom, democracy and the solidarity made possible by a social market
economy have become, in just a few decades, such a given and appreciated
fact of life for EU citizens that they are now viewed as ‘natural’, rather than
212 | MARIO P. CHITI
as the positive outcome of a far-reaching policy. And yet nothing is as
constructed and deliberate as this main connotation of the EU.
The ‘rule of law’ and fundamental rights thus play a dual role: within
the EU legal system they represent the system’s basic grounding,
developing the premises for EU citizens’ new sense of belonging;
externally, they act as a driver both for countries interested in joining the
Union and for those who enter into relations with the EU.
EU citizens now need to become aware that the EU is more than any
other a system of actually functional and guaranteed freedoms. European
identity has to be based on this pillar, which the Union itself has built,
rather than on the dubious legacy of the past (that European inheritance
that was the focus of so many arguments in 2004, on the occasion of the
Constitutional Treaty).
As noted above, externally the EU exercises its drive through the
gradual extension – always the product of ‘gentle force’, never that of
coercion – of democracy and common security. Thanks to the peculiarity of
a European space that was not predefined, the EEC originally founded by
six member states has extended in stages to its current 27 members,
delineating for each and every one far-reaching adaptations. The impact of
the EU goes well beyond its changing borders, positively influencing states
interested in joining (from Turkey to the Balkans) as well as states linked to
it through specific trade relations. The EU is hence becoming a ‘beacon of
liberty’ for the world at large.
It was therefore essential that in the ratification process of the new
Lisbon Treaty, regardless of how formally centred it may have been on the
role of national parliaments, that European public opinion (the most
informed and sophisticated there is worldwide) was made aware of the
crucial role of rights and the rule of law. A new ‘European citizenship’ will
not come into being through complex institutional and economic
mechanisms, but through the effectiveness of a system where “law
determines power, and power does not determine law” (Pöttering, 2007).
References
de Giovanni, B. (2002), L’ambigua potenza dell’Europa, Napoli: Guida.
Louis, J.V. (1989), L’ordinamento giuridico comunitario, Commissione delle
Comunità europee, Bruxelles-Luxembourg.
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 213
Mancini, F. (1989), “The Making of a Constitution for Europe”, Common
Market Law Review, Vol. 26, winter.
Padoa-Schioppa, T. (2001), Europa, forza gentile, Bologna: Il Mulino.
Pöttering, H.-G. (2007), Discorso al Parlamento europeo in occasione
dell’approvazione definitiva della Carta dei diritti, November.
12. DEMOCRACY IN THE EUROPEAN UNION
STEFANO MICOSSI*
U
p until the early 1990s, the European Union’s popularity with its
citizens had been on the rise, despite a lack of active involvement in
European affairs; subsequently, it appeared to drop radically. The
Maastricht Treaty ratification had to overcome widespread resistance from
various quarters: public opinion, national parliaments, the German
Constitutional Court. The impasse in the 15 years of negotiations on
institutions that followed the Maastricht Treaty projected an image of
paralysed decision-making. A new wave of discontent and anti-integration
sentiment has followed the accession of 12 new member states in 2005-07.
The rejection of the Constitutional Treaty in the French and Dutch
referendums in 2005 and the difficult ratification of the subsequent Lisbon
Treaty in 2008-09 have appeared to confirm the detachment of public
opinion in Europe from the institutions of the Union. The ‘permissive
consensus’ that had until then entrusted European elites with developing
integration seems to have evaporated. To some, this foreshadowed a
collapse of the Union and a return to intergovernmental forms of
cooperation.
According to many observers, the reason lay in a lack of democracy:
in the dual sense that common policies had diverged from voters’
preferences (output legitimacy) and that decision-making mechanisms
appeared to lack the basic requirements of transparency, accountability and
democratic involvement (input legitimacy). The issue of democracy has
taken on greater prominence since the Maastricht Treaty, which set up the
Union and extended its scope to monetary affairs as well as to two new
The author wishes to thank Carlo Bastasin, Sabino Cassese, Giandomenico
Majone and Gian Luigi Tosato for their useful comments, and Fabrizia Peirce for
invaluable research assistance.
*
214 |
DEMOCRACY IN THE EUROPEAN UNION | 215
political ‘pillars’ for foreign policy and internal security: areas that had
until then been the jealously guarded prerogatives of member states, under
national parliamentary control.
In the 15 years since Maastricht, however, integration has moved
forward at a fast clip, with enlargement to ten new member states and the
achievement of monetary union. Major progress has also been made under
the so-called ‘second pillar’, with strong support from public opinion: the
Amsterdam, Nice and Lisbon Treaties have extended application of the
Community method of decision-making to matters of border control, civil
and criminal justice and law enforcement affairs; Europol has been made a
European agency. Finally, despite a drawn-out slowdown in growth, the
past decade has witnessed the full implementation of the Financial Services
Action Plan (FSAP) and the approval of the services Directive, which
covers on a residual basis all economic activities not yet liberalised under
internal market legislation.
Two years down the road from the disastrous referendums in France
and the Netherlands, member states have reached, with the Lisbon Treaty,
an agreement on institutions that upholds the main innovations laid out in
the Constitutional Treaty – albeit without the ‘signs and symbols’ of a
constitution, which were strongly opposed by public opinion in quite a few
member states – and basically settles political issues left pending, after
Maastricht, in the operation of common institutions. The Treaty has thus
specified the allocation of competences between the Union and the member
states, the balance of powers between the Council, the Commission and the
European Parliament, as well as rebalanced, within the Council, the voting
weights of large and small countries. It has also put an end to the rotating
Presidency of the European Council, strengthened the powers of the High
Representative for the Common Foreign and Security Policy and vastly
increased the number of topics subject to majority voting.
Thus, it appears that feelings of paralysis in decision-making may be
widespread in the media and public opinion alike, but they are not
confirmed by fact. Nor has the pace of decision-making been slowed by the
accession of new member states, although some complain about the
increased complexity of Council decision-making.
Public opinion support for European institutions plummeted after
Maastricht, but has recovered somewhat since the middle of the 1990s: as
shown in Figure 1, up until 2008 over 50% of respondents to a
Eurobarometer survey continued to view participation in the Union as
216 | STEFANO MICOSSI
positive (although a drop in support below 50% is expected due to the
current deep economic crisis, which is feeding disillusionment with the
Union’s ability to respond effectively). Opinion polls also show that among
national and Community institutions, the European Parliament continues
to enjoy considerable prestige, although declining voter participation in
European elections might seem suggest the contrary.
Figure 1. Public opinion on participation in the EU*
(%)
75
70
65
60
55
50
45
1974
1976
1978
1980
UE-9
1982
UE-10
1984
1986
1988
UE-12
1990
1992
1994
1996
UE-15
1998
2000
2002
2004
2006
UE-25
2008
UE-27
* % of positive answers to the question: “Do you think that your country’s membership of the European
Union is a good thing?
Source: Eurobarometer.
That said, the issue of democracy is perhaps better addressed in
terms of adjusting a political system that has very considerably extended its
scope and thus requires a corresponding extension in the scope of its
democratic controls; but the lack of democracy does not appear to be the
main cause of a crisis that, as will be argued, may well have stemmed more
from the weakness of governments than from the opposition of the
governed. Nor should one expect an extension in the scope of democratic
controls to solve all of European society’s pending problems, from
DEMOCRACY IN THE EUROPEAN UNION | 217
unemployment to immigration, exclusion and security, in a world where
the pace of change is controlled neither by individual states nor by the
European Union.1
1.
The need for democratic legitimisation
The Union is a peculiar polity, without the powers of coercion and linkage
to a geographical territory typical of nation states; its powers are spread out
over a number of institutions and procedures, each of which has its own
legitimisation mechanisms (Lord & Magnette, 2004). These powers have
been bestowed by the member states, which have democratic institutions
and control the Union’s activity through the European Council of Heads of
State and of Government and the Council of Ministers. One must therefore
first of all seek to clarify what is meant by the requests for more
legitimisation channels.
The original design of the European Communities’ competences and
decision-making mechanisms reflected a technocratic and functionalist
approach, under which Europe’s higher interests were embodied in the
European Commission, a non-democratic body with exclusive powers of
legislative initiative and entrusted with the impartial custodianship of the
Treaties. The Council was the necessarily opaque forum for political
compromise among the member states; direct democratic legitimisation
was confined to the European Parliament, initially assigned weak
consultative powers, but later endowed with full co-decision of legislative
measures in most EU matters (including, after the Lisbon Treaty, the EU
multi-annual financial perspectives and yearly budgets).
One problem has been that decisions on the extension of the Union’s
functions were hidden behind the veil of small incremental steps justified
by functional requirements – a solution devised by Monnet to pursue the
European construction following the rejection of the European Defence
Community by the French National Assembly in 1954. This intrinsically
undemocratic strategy was facilitated by the integration process’s
1 This clearly does not rule out that European policies may yet improve in this
respect, lending greater consistency to member state policies and strengthening
their efficiency through better coordination. On this, see for instance the Sapir
Report, containing ambitious proposals to revise common economic policies (Sapir
et al., 2004).
218 | STEFANO MICOSSI
indeterminate finality, which allowed supporters of the political union
concept to co-exist with those who simply wanted a large open market. The
fall of the Berlin Wall added further uncertainty regarding borders, as
vagueness prevailed as to where the enlargement process would stop
(Majone, 2005).
Developments in the wake of the failed Constitutional Treaty
referendums in France and the Netherlands have radically changed this
picture. First of all, decisions on enlargement were shifted to the
political/constitutional level as a number of countries decided that they
will in the future submit all enlargement issues to popular referendum;
moreover, in the Lisbon Treaty political discretion in decisions to admit
new members will be constrained by the need to respect the so-called
‘Copenhagen criteria’ (Article 49 TEU).
More importantly, the Lisbon Treaty has somewhat set in stone the
attribution principle. It has established member state residual jurisdiction
in all matters not explicitly devolved to the Union (Articles 4 and 5 TEU)
and – through new Protocols on the role of national parliaments in the
European Union and the application of the principles of subsidiarity and
proportionality – it has introduced political and judicial procedures to keep
in check the Union’s competences. The risk of jurisdiction ‘creep’, eluding
democratic control, now appears to be very much a thing of the past.
Furthermore, by removing the ‘signs and symbols’ of a constitution, the
Lisbon Treaty has also removed indeterminate finality from the picture: it
is now clear that the Union is not destined to become a state and that the
current balance between federal and confederal dimensions is here to stay.
Therefore, the Lisbon Treaty has removed a number of obvious flaws in the
Union’s democratic legitimisation.
Some have claimed that democratic legitimisation of Union decisions
is not possible, as there is no demos, no common identity or sufficiently
shared values to guide institutional and political action (Dahrendorf, 2001
and Schmitter, 2000). True, a weak common identity makes it difficult to
refer back to a single popular support base; but it does not preclude the
development of partial mechanisms legitimising individual decisions or
decision-making processes; nor does it preclude forms of legitimisation
linked to the output of common action, insofar as said action meets voters’
needs that individual nation states are no longer in a position to satisfy.
The lack of demos is mirrored in the restrained use of majority
voting: the extensive discussions and long negotiations required for
DEMOCRACY IN THE EUROPEAN UNION | 219
achieving consensus legitimise decisions that would not be acceptable were
they imposed by a majority of member states upon a minority of dissenting
member states.
Moravcsik (2006), conversely, has claimed that further channels of
democratic legitimisation are not required, for two main reasons. Firstly, he
sees the European Union as the product of an intergovernmental
agreement, embodied in the Treaties, that is “pragmatically efficient,
normatively attractive and politically stable”: a satisfactory negotiated
equilibrium, periodically modified when the need arises, and otherwise
reconfirmed, and that therefore reflects the requirements of participating
states. Secondly, he maintains that increasing the opportunities to
participate and make decisions does not necessarily generate more
participation, nor does increased participation always generate more
legitimisation. In fact, in his view, declining voter participation in elections
to the European Parliament may confirm that the greater scope for
democratic participation provided for by the Treaties has largely been
unused; and where and when it has been used, this has been to express
dissatisfaction with the domestic policies of national governments (a point
also made by Bogdanor, 2007, Hicks, 1999 and Schmitter, 2000).
Moravcsik considers that this is due to the nature of the tasks
undertaken by the Union, which at least originally were of a mainly
technical nature, with low general political salience for most citizens:
international trade, development assistance, agriculture, safety standards
for manufactures and services.
This is a minority view, however. A majority of political scientists
and constitutionalists conversely stress that the Union’s institutions have
now taken on an autonomous role, even vis-à-vis the member states, in
defining the rights and political, economic and social conditions of
individuals; they go on to assert that these powers cannot be taken back by
the member states, inter alia, because of the unanimity requirement for
Treaty revision; and precisely for this reason deem that the accumulation of
powers in Union hands has already exceeded the threshold requiring
autonomous safeguards against possible abuses (Schmitter, 2000; Lord,
2004; Lord & Harris, 2006 and Schmidt, 2006). Such possible abuses concern
first and foremost the Council, insofar as it can elude national
parliamentary control when ruling at the Union level.
Moreover, as has been mentioned, further expanding the Union’s
political agenda and activities through functionalist methods is no longer
220 | STEFANO MICOSSI
possible. Further political and institutional progress can only stem from
deliberate decisions on the part of member states acting in full
accountability vis-à-vis their public opinions and parliaments.
The co-existence within the Union of two distinct levels at which
public institutions exercise their power – federal and confederal – generates
an intrinsic need for corresponding democratic legitimisation mechanisms
and channels, focusing on the one hand on member state representation in
the Council, and, on the other, on citizen representation in the European
Parliament. This dual representation has now been explicitly incorporated
in the Lisbon Treaty (new Article 10, para. 2, TEU).
At the member state level, national parliaments and the public at
large need to be informed of the decisions to be taken within European
institutions and be able to influence the positions of their own national
representatives to the Council. Separate control and legitimisation channels
are also required at the Union level since its acts and decisions acquire
autonomous value with respect to individual member states’ inputs:
because of the use of qualified majority voting in the Council, and the
attendant need to reach compromise solutions that may partly sacrifice
national interests; because of the constitutional weight of principles of
primacy and direct effect of community legislation; and because of the role
the Community judicial system can play in the defence of individuals’
rights, even vis-à-vis the member states.
The revealed preference theorem that is at the root of Moravcsik’s
analysis of negotiated equilibrium among Union countries supports this
conclusion. Over the last three decades there has been a constant increase
in the Union participation and control mechanisms, through the European
Parliament and national parliaments alike, which have supplanted and
taken over the role initially played by organised economic interest groups.
Various other channels have been opened that provide individuals with
direct access to European institutions: examples include the European
Ombudsman and the right to petition European institutions in one’s
mother tongue, introduced by the Maastricht Treaty, and broader rights for
individuals to institute proceedings before the European Court of Justice.
The new Title II of the Treaty on European Union adopted in Lisbon,
“Provisions on democratic principles”, while carrying over from the
previous Treaty provisions on citizenship, specifies new rules on the right
of Union citizens to take part in its democratic life, including the right of
legislative initiative (Art. 11, para. 4, TEU). This same section also contains
DEMOCRACY IN THE EUROPEAN UNION | 221
detailed provisions regarding national parliament participation in the
functioning of the Union (see Art. 12).
A mapping of decision-making procedures in the various areas of
common action confirms a growing demand for democracy at Union level
that has been met. The extension of qualified majority voting in new areas –
which reduces the control exercised by individual member states over
Council decisions – was always matched by an extension of European
Parliament powers. This occurred with the Single Act, which applied
majority voting to decisions regarding the internal market, subsequently
leading, in the Maastricht Treaty, to the introduction of co-decisions
between the Council and Parliament; it also occurred with the Lisbon
Treaty when issues of immigration, justice and law enforcement came
under Community jurisdiction and co-decision was made the normal
decision procedure.
Similarly, the Commission’s exclusive right of legislative initiative
has mainly applied to ‘negative’ integration, i.e. decisions that remove
barriers to the internal market (Majone, 2005), while in matters such as the
coordination of economic policies or foreign and security policy, the
initiative has remained in the hands of member states, safeguarding the
prerogatives of national parliaments. The Lisbon Treaty has decided that in
“specific cases provided for by treaties” procedures followed for the
adoption of directives, regulations or decisions may waive Commission
participation (Article 289, TFEU).
Nor do facts confirm low public opinion interest in Union decisions.
Public debate on issues such as the EU Directive on services, the accession
of Turkey or the mention of Christian values in the Preamble to the
Constitutional Treaty elicited active involvement of intellectuals, political
parties and large segments of European society.
2.
Control and democratic legitimisation mechanisms
There is widespread feeling that the existing democratic control
mechanisms within the Union are weak and inadequate; as mentioned
above, criticism has focused both on the input into the decision-making
dimension and the substance of decisions, or the output dimension. Let us
look into the former first.
222 | STEFANO MICOSSI
2.1
Elections and referendums
The main mechanism of democratic participation lies in popular voting in
elections and referendums. As noted above, voter participation in elections
to the European Parliament is not high, at under 50% of the electorate, and
it dropped by about twenty percentage points between 1979, the first
election, and 2004.2 Furthermore, voter positions on European matters have
appeared to strongly correlate with the popularity of national governments
in office: so much so that some observers have characterised European
elections as ‘second-round’ elections, used to send signals on domestic
rather than European politics (Hicks, 1999 and Schmitter, 2000).
Low voter participation may however stem from reasons other than
disaffection from Community institutions (Lord, 2004): it may for instance
reflect the fact that these consultations have little impact on the general
thrust of European affairs and the identity of those who will be chosen to
govern. Alternatively, in a more positive view, low voter participation may
reflect the basic consensus of leading political groups as to the general
direction of European affairs: when positions advocated by parties and
candidates appear to be sufficiently aligned with the preferences of the
median voter, the incentive to go out and actually vote is reduced. In fact,
the remoteness and complexity of European issues tends to generate
concordant positions of national parties, with little role for the traditional
left/right cleavages (see also Bastasin in this volume).
That said, the central issue remains the absence of a unified public
space at the European level where it would feel relevant to express one’s
personal preferences. This weakness in the European political system is not
going to be remedied overnight; it can only fade gradually with the
emergence of European political parties and an increased perceived
relevance of European issues in everyday life.
In fact, European political groupings have turned into stable
organisations over recent years and have begun to focus their meetings on
specific European issues, according to timelines linked to those of the
Some observers have claimed however that decline in voter turnout largely
reflects spurious statistical phenomena in voter demographics, in particular the
accession of countries where voter turnout is traditionally lower; when data are
corrected for such phenomena, the downward trend is less strong (Franklin, 2001).
2
DEMOCRACY IN THE EUROPEAN UNION | 223
European Council. In their comprehensive study of the voting behaviour of
members of the European Parliament, Hix et al. (2007) conclude that
“voting along supranational party lines gradually replaced voting along
national party lines”.
The process could be speeded up – based on the new powers
bestowed on Parliament by the Lisbon Treaty – if national parties were to
take the opportunity of European electoral campaigns to make explicit their
preferences regarding the Union’s budget and other Union policy issues;
alas, this did not happen in the course of the June 2009 European elections.
Conversely, the idea that the President of the Commission should be
elected directly by voters seems unconvincing: politicising the Commission
would be incompatible with the Commission’s function as arbiter of Treaty
application and its exclusive power of legislative initiative, which also
assumes a shared, non-partisan vision of the integration process. For the
moment, no such radical change in the institutional equilibrium of the
Union seems imminent.3
Equally unconvincing is the idea that the democratic gap could be
bridged by resorting more frequently to referendums: the dangers inherent
in the recourse to direct democracy for the settlement of complex issues are
increased, in the case of European issues, precisely by the lack of demos and
the absence of strong collective identification with European institutions.
2.2
The role of national parliaments
At the member state level, what matters is adequate control by national
parliaments over the actions of governments and administrations within
the Council, which constitutes an indirect channel of democratic control by
citizens over Union decisions.
National parliaments play a central role in the approval of Treaty
modifications, which constitute the Union’s primary law; in many member
states this approval comes under constitutional procedures. Similarly,
decisions on the Union’s financial resources require ratification under
3 The increased powers granted to the European Parliament in the appointment of
the President of the Commission do not contradict this statement, as the
appointment also requires the agreement of the European Council and a broad
consensus within both institutions.
224 | STEFANO MICOSSI
national fiscal procedures since they imply funding by state budgets.
Clearly, national parliaments’ powers are greater for Council decisions
adopted under the unanimity rule, where European Parliament
involvement is weaker. Since such decisions have considerable political
and institutional significance, powers of scrutiny are usually exercised with
high degrees of incisiveness and often with active public opinion
participation. Conversely, national parliament control is inevitably weaker
over Council decisions regarding Union directives or policies where
majority voting is the rule.
This is why some observers have claimed that transferring functions
to the Union implies shifting the balance of powers towards executive
powers, which can avail themselves of considerable discretion when
negotiating compromises within the Council, as well as towards
bureaucracies, which cooperate in the implementation of Community
norms within Council Committees. Both sets of institutions, far removed
from the public eye, can collude with the Commission and with segments
of the organised interest community, according to vertical filières that can
use the Union to bring about decisions that would not be feasible at
national level (Chryssochoou, 2003 and Maurer et al., 2000).
Some member states – in particular Denmark and the United
Kingdom – have addressed this issue by adopting tight procedures to
provide guidance and oversight for government behaviour within
European institutions, while in other cases parliamentary procedures
appear less incisive and could be strengthened (Hicks, 1999 and Lord,
2004).
That said, majority voting within Council and co-decision with the
European Parliament rule out rigidly binding mandates that would
preclude all compromise; similarly, any direct intervention by national
parliaments in European decision-making would surely entail decisionmaking paralysis (see Manzella elsewhere in this volume). Democratic
control must therefore be resolved through the Union’s mechanisms, that
is, mainly via scrutiny by the European Parliament.
One noteworthy exception to this conclusion concerns the role of
national parliaments in defending subsidiarity, as in the Treaty of Lisbon:
violation of the subsidiarity principle would indeed amount to an
infringement of member state prerogatives by Community institutions,
which national parliaments are fully entitled to oppose. Should conflicts
DEMOCRACY IN THE EUROPEAN UNION | 225
arise and not lend themselves to settlement, the European Court of Justice
will have the last word.
2.3
Control and democratic legitimisation at the Union level
The Union is a peculiar polity where power is spread out over multiple
centres and is exercised through various decision-making procedures –
which currently number about thirty.4 It features not only frequent
dissociation of territorial and functional jurisdictions, but also variability in
the criteria defining insiders and outsiders with respect to the exercise of its
powers, both functionally and territorially (Schmitter, 2000). For this
reason, as pointed out earlier, it has been described as a polity with
undefined borders. The European Parliament, the main expression of
popular will at the Union level, has up till now only fully intervened in
decisions regarding the so-called first pillar, but this will change, as has
been described, with the Lisbon Treaty.
In addition, debate on European issues tends to elude the left/right
divides typical of national political systems and break up on a case-by-case
basis into different member state and interest group coalitions: this does
not favour linkages between national political debates and decisions to be
taken at the European level. In fact, voting patterns in the European
Parliament reflect motivations that can rarely be traced back to traditional
political stances within member states; and national public debate on
European issues tends to run along pro- and anti-European lines, which are
also poorly correlated to traditional party divides (see Hicks, 1999 and
Bastasin in this volume).
Finally, as noted by Majone (2005), the Union is not organised
according to the division of powers paradigm typical of Western
democracies, but according to a model where powers are shared among
stakeholders, as in pre-modern European polities: member states, the
European Parliament, Community technocrats, social groups standing for
organised interests and even magistrates participate variously in decisionmaking and procedures, depending on the topic and the coordination
problem to be resolved.
See European Convention (2002), Final Report, European Convention Working
Party IX on Simplification, CONV 424/02, 29 November 2002.
4
226 | STEFANO MICOSSI
The two most emblematic illustrations of this model are the so-called
‘Community decision method’ and the ‘networked’ participation of
organised interest groups in decision-making processes. Under the
Community method, the Commission puts forth proposals for directives
and decisions, Council and Parliament reach decisions together according
to procedures that combine varying degrees of majority voting and
consensus, depending on the intensity of national preferences. If the
Commission does not agree to the amendments agreed by Council and
Parliament, it may withdraw its proposal; absent such a text, Council and
Parliament cannot reach a decision. In practice, each of the three bodies
needs the other two to come to a decision.
In the exercise of its power of initiative, as in that of guardian of the
Treaty, the Commission’s function can perhaps best be understood not as a
supra-national independent interpreter of shared public interests, as
envisaged by its founding fathers, but as a technical power: in other words,
the Commission can be seen more as an executive agency and a judge, than
a government. And in fact, its powers are specifically defined by the
treaties and in many cases are exercised on Council delegation of authority.
With the extension of the Union’s ‘political’ remit, there has been a constant
increase in the Council’s and Parliament’s weight in decision-making,
whereas the Commission’s role has been limited to one of technical support
and secretariat.
Nor is the Commission’s power of initiative exercised as if it were
absolute: in fact the Commission responds to requests from member states,
organised interest groups and Parliament. Over the last few years, the
balance of such influence has shifted significantly towards Parliament,
which approves the Commission when it is appointed, may dismiss it with
a vote of no-confidence and controls its budget.
As for networks, the Euro-polity has from the very onset bestowed a
privileged status on associations representing organised economic interests
at the European level; it has often encouraged and financed the setting up
of such bodies. Over time, producer organisations were joined by trade
unions, consumers, environmentalists and ‘single issue’ advocacy groups;
many regions have set up representation offices in Brussels. These
organisations have become the focal point for networked, extended
communities of interests in the member states, which rely on the network
to take part in Commission and Parliament consultation processes, publicly
debating the merits of measures as they are being developed, and standing
DEMOCRACY IN THE EUROPEAN UNION | 227
in on the drafting of legal provisions, to which they may contribute with
their technical input.
Similar developments have targeted public administrations and
agencies as well, following the Single Act. Within the Union, the
application of common legislation is entrusted to the member states (Article
10 of the Treaty establishing the European Community). Qualified majority
voting was introduced in the Council for internal market measures in
parallel with the setting up of Council Committees made up of member
state representatives and (as a rule) chaired by the Commission, entrusted
with coordinating the application of common legislation. These
Committees went on to become the hubs of national public
administrations’ specialised functional networks; through these, vast
swathes of civil servants have become the voice of national interests within
Community institutions and the voice of the Community within national
bureaucracies. The European Parliament has gradually developed powers
of scrutiny geared to their activities, thereby controlling the exercise of the
powers delegated to them and politically impacting their work.
Regulatory agencies – set up to provide continuity and independence
to the executive in fields such as competition, financial market supervision,
food and environmental security (Majone, 1996) – have also established
their specialised networks, the hubs of which are the committees of
national regulators where officials define regulatory guidelines and review
implementation issues. European Parliament involvement in this area has
been considerably less, as independence from political interference is an
essential rationale for such agencies.
This increasing number of networks has contributed in no small
manner to the legitimisation of Community institutions vis-à-vis various
constituencies, through widespread participation, the emergence of
broader bases for consensus on Community institutions’ legislation and
decisions, and the introduction of counterweights to the various decisionmaking centres. To some extent, this may weaken the European
Parliament’s powers of guidance and control. But the increase in the
number of legitimisation channels thus brought about does strengthen the
Union (see Cassese, 2002 and elsewhere in this volume), in a complex
transnational system where the development of channels of representation
and communication between representatives and those they represent
remains limited.
228 | STEFANO MICOSSI
Potential conflict between various legitimisation channels in turn
induces adjustments in the way the system operates, through a continuous
process of ‘constitutional deliberation’, a salient feature of European
institutions (Lord & Magnette, 2004 and Cassese in this volume). Public
opinion regarding the impact of internal market common policies was thus
taken on board as of the Amsterdam Treaty, through a revision of Article
95, which constitutes the main legal basis for internal market legislation,
and the introduction of the new Article 16A on public services, which
extended the scope of national public interest protection with respect to the
application of common legislation.
An apparent blow to the democratic legitimacy of the Union has now
come from the German Constitutional Court decision that has declared the
compatibility of the Lisbon Treaty with the constitution,5 but which has
(re)asserted that the Union is not a federation, that sovereignty only lies
with the member states and that the European Parliament cannot claim to
represent European citizens, due to its skewed representation formula that
favours small member states. In reality, these positions are not new, they
were already stated in the decision that opened the way to ratification of
the Maastricht Treaty, and they do not contradict the normal functioning of
European decision-making. Their real significance lies in the enhanced
safeguards that they posit for the possibility, opened by the Lisbon Treaty,
to change decision-making procedures by unanimous deliberation of the
European Council: the German Constitutional Court has indicated that any
such decisions will have to be ratified by the national parliament –
although it is not clear under what procedures, constitutional or ordinary.
But such passage would in all likelihood have been inevitable anyway,
since under the Lisbon Treaty any national parliament would be able to
oppose such a change.
2.4
Popular legitimisation and constitutionalism
Mény (2002) has argued that popular dissatisfaction with democracy has
increased because of the larger role played by ‘constitutionalist’ or ‘nonmajoritarian’ mechanisms in the exercise of public powers; this concerns
member states as much as the European Union. Over the last few decades
Cf. Federal Constitutional Court , Judgment of 30 June 2009, (2 BvE 2/08, 2 BvE
5/08, 2 BvR 1010/08, 2 BvR 1022/08, 2 BvR 1259/08 und 2 BvR 182/09 ).
5
DEMOCRACY IN THE EUROPEAN UNION | 229
these independent powers have taken on particular significance in market
regulation, through the setting up of independent agencies (Majone, 1996).
The paramount example is monetary policy management that has been
entrusted exclusively to central banks, thereby removing it from the sphere
of possible inflationary manipulation by governments.
However, central banks and regulatory agencies were set up by
parliaments, which defined their goals and instruments in the law; and in
the exercise of their powers, they were typically made independent from
the executive but not from parliamentary scrutiny. Their legitimisation is
secured not only by their political and parliamentary mandate, but also by
procedures defining how decisions must be taken for the protection of the
collective and individual interests they are responsible for upholding (Lord
& Magnette, 2004).
A significant aspect of European Union activity does indeed concern
market regulation, with a view to removing barriers to free circulation and
competition. When it comes to implementation, the Commission operates
as an independent agency, sanctioning states and individuals for violations
and obliging them to put an end to prohibited behaviour. Decisions may be
corrected through appeals to the European Court of Justice, but as a rule
not by national or Union political powers. Some have claimed that the
European Central Bank (ECB) enjoys even greater independence than do
national central banks, as neither the Council nor the European Parliament
provides an actual political counterweight. The ECB’s mandate is treatydefined, and therefore can only be modified via a unanimous vote of the
member states, whereas in most countries the central bank’s mandate is
defined by ordinary legislation.
The loss of political control can generate unpopularity –
understandably, insofar as public opinion may not perceive the efficiency
benefits
in
economic
policy
management
linked
to
this
‘constitutionalisation’ (Eichengreen, 2007). Unpopularity may also stem
from the very attitude of national governments, which sometimes have
shown no hesitation in blaming the Union for unpopular policies they had
voluntarily agreed to implement within the Council. Unpopularity can also
feed on the rising intensity of forces for globalisation and technological
change, as these reduce the effectiveness of traditional tools of economic
management and income distribution (Dahrendorf, 2001; Scharpf, 1999 and
Schmitter, 2000).
230 | STEFANO MICOSSI
The most significant contribution in terms of restoring government
and Union popularity would come from better designed economic policies,
able to address the challenges of global markets, which is the topic of the
following section.
3.
Legitimisation through substantive Community action
Public institutions are established to meet needs that cannot be met
through individual action and thereby require forms of collective action. The
quality of collective action plays a significant, and in the long run, crucial
role among legitimisation processes. This applies to the European Union’s
institutions as well: all the more so, as democratic legitimisation through
decision-making processes is weaker there (Schmitter, 2000 and Scharpf,
1999).
Various authors have considered this to be a leading cause of Union
unpopularity: they feel that integration policies reduce the latitude national
policies may have to achieve redistribution goals, thereby contributing to a
‘race to the bottom’ in terms of public welfare and public services (e.g.
Dahrendorf, 2001 and Scharpf, 1999). Mény (2002) underscores the Union’s
role in shifting the balance in economic policies in favour of market forces.
These conclusions call for some qualification. First of all, as pointed
out earlier, the loss of control suffered by national policies has to be
assigned to globalisation more than to specific action on the part of the
Union; the Union, and the member states for that matter, can do nothing
but adapt to processes that elude control by all governments. The criticism
therefore concerns the operational difficulties encountered by democratic
systems in general, and not only by European institutions. Examples
include difficulties in responding adequately to economic insecurity or to
national welfare system strains linked to population aging. Moreover,
during slow-growth years, weak and irresolute national governments did
not hesitate to blame Europe for events that stemmed from their inability to
reach decisions, thereby feeding hostility towards European institutions.
It is also worth noting that many Union initiatives have constrained
state action, but to the benefit of citizens: for instance, by strengthening the
defence of consumer interests through competition policy or transparency
and quality requirements in the provision of public services.
Finally, empirical evidence confirms convergence in the fundamental
philosophy of macroeconomic policies, in the sense that neither monetary
policy nor public deficits are considered very effective tools to bring about
DEMOCRACY IN THE EUROPEAN UNION | 231
lasting improvements in growth and employment. The data, however, do
not confirm the existence of a general constraint on national policies
precluding the pursuit of autonomous goals of equity and solidarity.
Mosley (2004) has shown that pressure exerted by financial markets
on governments with a view to having them reduce deficits is not related to
the adoption of the single currency. In general, empirical evidence confirms
that countries of very different state size and resulting tax burdens can
persist side by side in an environment of integrated capital markets. In
other words, different collective preferences in terms of public intervention
need not be incompatible with integration and globalisation.
Similarly, a whole body of literature has identified sustainable
unemployment benefit schemes as well as inefficient schemes, which are
unsustainable in an open and integrated environment (Sapir, 2006). Insofar
as they encourage risk-taking, efficient systems that insure against the risk
of losing one’s job can increase growth, rather than dampen it (Ferrera &
Sacchi in this volume). Gros & Micossi (2006) have called for common
labour market policies that would facilitate the integration of immigrants
while limiting the impact of wage undercutting for nationals.
As a rule, responsibility for economic and social policies lies with the
member states, and this should be acknowledged publicly. That said, a
sharing out of tasks between the Union and member states that would
assign the former responsibility only for ‘negative integration’ policies – i.e.
establishing a common market and removing barriers to free movement –
would be necessarily unpopular and untenable in the long run. This is why
the identification of appropriate ‘positive integration’ policies, taking on
board public opinion demands – for social cohesion, security, effective
management of migration flows – remains a crucial element of
legitimisation.
3.1
Opening new areas for decision-making in the Union’s policies
The Lisbon Treaty has kept the name of the Treaty on European Union
(TEU), while modifying that of the Treaty establishing the European
Community, which will now be called the Treaty on the Functioning of the
European Union (TFEU). The name change is substantive: many rules
regarding the functioning of what was previously called the second and
third pillar are now included in this second part.
More important, this partition could also foreshadow a distinction
between fundamental and ordinary law, as already exists in many
232 | STEFANO MICOSSI
countries. This interpretation is confirmed by the simplified revision
procedures applicable to the provisions ”relative to the internal policies
and actions of the Union” (cf. Article 48 of the Final Provisions of the Treaty
on European Union). These procedures envisage that the Council shall
decide treaty changes in those areas unanimously, after having consulted
the European Parliament and the Commission. Convening an
intergovernmental conference will no longer be required.
The issue is addressed in a more general context by Tosato in this
volume. Suffice it to say that this change has potentially significant
implications for the Union’s democratic legitimisation: common policies
can now be changed without challenging the institutional framework of the
Union. The policies in question have indeed become just that: common
policies, about which political differences may appear, according to
traditional left/right lines or to new divides specific to the European public
arena. In other words, new spaces have been opened for public debate and
political action at Union level; if they are used, the Union’s democratic
legitimisation may become stronger.
With new tasks to undertake and new public spaces for political
debate at a transnational level – that of democracy “beyond States”, to
quote Lord & Harris (2006) – the politicisation of the Union’s institutions
seems bound to take up greater scope. The process will however need to
take into account the specificities of European construction, where many
authorities have been established to guarantee the impartial
implementation of common rules: in order to survive, there is a need to
preserve the areas of impartiality, free of partisan political influences.
4.
Conclusions
The European Union is not a state, so comparisons with state-type models
of democratic legitimisation may well prove misleading. Nor is the
discussion about intervening ex novo to introduce democratic accountability
within an organisation which did not previously know it. The first direct
election to the European Parliament took place close to 30 years ago; since
then, the Union’s institutional system has continued to evolve, establishing
in the process significant areas for democratic participation and control.
Once the Union is recognised for what it is – an innovative polity,
where power is shared by a large number of players, with many
mechanisms for participation and wielding influence, constantly adapting
its institutions to the requirements of its component parts – it becomes
DEMOCRACY IN THE EUROPEAN UNION | 233
apparent that on the whole it complies with democratic legitimisation
standards no worse than do member states (Mény, 2002), even if multiple,
and potentially conflicting legitimisation channels and principles may
confuse observers.
In the end, the Union will be strong in the eyes of public opinion and
member states alike if it manages to come up with solutions to the
challenges of globalisation, external and internal security, energy and the
environment. In this respect, there is no reason why the difficulties
encountered over the last decade should last, to the extent that they were a
systemic consequence of poor Union functioning. On the contrary, we are
perhaps reaching the end of a long and painful adjustment process to an
exceptional series of real and financial shocks, generated by the fall of the
Berlin Wall. Time will no doubt tell.
For the time being, what saliently needs to be kept in mind is that the
member states and EU citizens, however mangled by crises and difficulties,
continue to turn to the Union when seeking solutions to problems that
cannot be solved nationally, and that there is an extraordinary proliferation
of subjects and channels providing participation in European debates and
decisions, in new and ever-changing ways.
Of course, this continuous adaptation process has not been without
consequences for institutional balance. The founding fathers’ initial idea of
a supranational polity has been scaled down to accommodate a more
realistic view of power attribution and sharing. With the extension of the
Union’s scope, and its increasing politicisation, the weight of the Council
and the Parliament in decision-making has increased; the Commission has
strengthened its technical prerogatives in matters of treaty implementation
and enforcement, while its right of initiative has been curtailed.
Through this continuous adjustment process, the Union has
continued to design new legitimisation solutions for multi-level and
transnational political structures, which may well represent the future of
democracy in a world of increasingly integrated manifold communities.
References
Bogdanor, V. (2007), Legitimacy, Accountability and Democracy in the European
Union, A Federal Trust Report, Federal Trust for Education &
Research, London, January.
234 | STEFANO MICOSSI
Cassese, S. (2002), “Is there really a democratic deficit?”, in Institutional
Reforms in the European Union – Memorandum for the Convention,
Europeos, Rome.
Chryssochoou, D.N. (2003), “EU Democracy and the Democratic Deficit”,
in M. Cini (ed.), European Union Politics, Oxford: Oxford University
Press, chapter 23, pp. 366-381.
Dahrendorf, R. (2001), Dopo la Democrazia, Interview edited by A. Polito,
Roma-Bari, Laterza.
Eichengreen, B. (2007), The Breakup of the Euro Area, NBER Working Paper
No. 13393, National Bureau of Economic Research, Cambridge, MA,
September.
European Convention (2002), Final Report, European Convention Working
Party IX on Simplification, CONV 424/02, 29 November 2002.
Franklin, M. (2001), “How Structural Factors Cause Turnout Variation at
European Parliament Elections”, European Union Politics, Vol. 2, No. 3,
pp. 309-329.
Gros, D. and S. Micossi (2006), Crisis in the European Union: A Fresh Start,
CEPS Policy Brief No. 117, CEPS, Brussels.
Hicks, S. (1999), The Political System of the European Union, London:
Macmillan.
Hix, S., A.G. Noury and G. Roland (2007), Democratic Politics in the European
Parliament, Cambridge: Cambridge University Press.
Lord, C. (2004), A Democratic Audit of the European Union, Basingstoke:
Palgrave Macmillan.
Lord, C. and E. Harris (2006), Democracy in the New Europe, Basingstoke:
Palgrave Macmillan.
Lord, C. and P. Magnette (2004), “E Pluribus Unum? Creative
Disagreement about Legitimacy in the EU”, Journal of Common Market
Studies, Vol. 42, No. 1, pp. 183-202.
Majone, G. (1996), Regulating Europe, London: Routledge.
Majone, G. (2005), Dilemmas of European Integration – The Ambiguities and
Pitfalls of Integration by Stealth, Oxford: Oxford University Press.
Maurer, A., J. Mittag and W. Wessels (2000), “Theoretical Perspectives on
Administrative Interaction in the European Union”, in T.
Christiansen and E. Kirchner (eds), Committee Governance in the
European Union, Manchester: Manchester University Press.
DEMOCRACY IN THE EUROPEAN UNION | 235
Mény, I. (2002), “De la Démocratie en Europe: Old Concepts and New
Challenges”, Journal of Common Market Studies, Vol. 41, No. 1, pp. 113.
Moravcsik, A. (1998), The Choice for Europe. Social Purpose and State Power
from Messina to Maastricht, London: UCL Press.
Moravcsik, A. (2006), “What Can We Learn from the Collapse of the
European Constitutional Project? A Symposium”, Politische
Vierteljahresschrift, Vol. 47, No. 2, pp. 219-241.
Mosley, L. (2004), “Government-Financial Market Relations after EMU.
New Currencies, New Constraints?”, European Union Politics, Vol. 5,
No. 2, pp. 181-209.
Sapir, A. (2006), “Globalisation and the Reform of European Social
Models”, Journal of Common Market Studies, June, pp. 369-389.
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Sapir Report), Oxford: Oxford University Press.
Scharpf, F. (1999), Governing in Europe: Effective and Democratic, Oxford:
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Schmitter, P.C. (2000), How to Democratise the European Union ... and Why
Bother?, Oxford: Rowman & Littlefield Publishers, Inc.
13. TRAIL-BLAZING DEVELOPMENTS IN
JUSTICE AND HOME AFFAIRS
GIACINTO DELLA CANANEA*
E
ver since the collapse of the Soviet system, capitalist market
economies have prevailed worldwide, based on economic
institutions such as prices, markets and businesses. However, market
economies require a number of corresponding legal tools, such as property,
contracts and judicial protection of rights. They also require ‘public goods’,
such as security and public order, defence and civil protection, which
public institutions are expected to deliver.1 The importance of such goods
has become even more evident during the last 10 years, due to the growing
awareness that individuals and groups may jeopardise the ability of states
to produce and provide those ‘goods’ that are essential to an ordered
society. In order to preserve this ultimate value – a legally unchallengeable
goal,2 regardless of the modalities of its achievement – a dual line of
analysis must be developed, by identifying the terms of the problem and
specifying the constructs required to work out a solution. The first of these
lines is not addressed fully in this paper. Rather, the paper focuses on the
achievements at the level of the European Union and on their future
* The author expresses his thanks to Sabino Cassese, Stefano Micossi and Gian
Luigi Tosato for their comments on an earlier version of this chapter.
1 The term ‘public institutions’ is used here in the broad sense, including both
supranational agencies and sub-state-level authorities, such as territorial bodies
(regions) as well as legal entities that are formally private but that exercise public
functions.
According to Ziller (2007, p. 55), “research to date shows that citizens of all
Member States expect the Union to provide protection in those fields that are of
direct relevance to their everyday lives”, as is the case with justice and home
affairs.
2
236 |
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 237
prospects. It briefly describes less recent developments, in order to
concentrate on the more recent.
1.
The problem: Losing control over territory and individuals
The starting point is that the authority once exercised by the institutions
that are used by states to exercise authority over territory and people has
been undermined and eroded, even where state organisation is efficient.
There is not a single cause for this, but, rather a plurality of causes, which
often interact with one another.3
Territorially defined jurisdiction. Criminal organisations increasingly
operate transnationally. Criminals, goods (drugs, weapons, hazardous
waste) and the proceeds of illegal activities move around the world
unhindered, including among European countries whose borders are
‘porous’. A further impact derives from the gradual increase – brought
about by conflict and famine – in the number of immigrants who attempt to
‘illegally’ enter EU member states. Public institutions thus find it
increasingly difficult to prohibit specific deeds or activities, even when they
resort, under extreme circumstances, to the use of force.4 Meanwhile,
various groups (separatists, terrorists, religious fanatics) are mounting
deliberate attacks on collective security. Thanks to modern technology, the
availability of funding and easy access to military weapons, these groups
are now in a position to inflict unprecedented damage on property, persons
and law-abiding society. They are challenging the ability of specialised
agencies to exercise functions of intelligence-gathering and policing, as
territorial separation constrains what these agencies may do.
Failures in information-gathering. The responsiveness of state
bureaucracy is not only constrained by national borders. The information
available to such bodies is also limited and its processing is costly. It is
therefore partial, at times distorted and often obsolete. When
administrations in charge of intelligence-gathering or policing are poorly,
The issues covered here have been the focus of much work. For a global view, see
Peers (2008).
3
In the sense that the hallmark of the state – according to Max Weber’s well-known
analysis – is its monopoly over the legitimate use of force, as opposed to the use of
force per se (see Giannini, 1990, p. 224).
4
238 | GIACINTO DELLA CANANEA
insufficiently or belatedly informed, decision-making is inevitably affected
by these shortcomings. Expected outcomes cannot be delivered.
Discrepancies in focus and organisation. In addition to often not being in
a position to fully exercise control over their territory and not having access
to adequate information, state bureaucracies follow different approaches.
Such differences to a large extent reflect political ideas, but depend also on
national administrative styles. Consider, for example, the plurality of police
force structures, as one finds in Italy.5 Such asymmetries risk further
eroding the ability of states to achieve territorial control. For example, if
Spanish police forces go so far as to use extreme force in refusing entry to
illegal migrants, while Italy and Greece let them in, this may be viewed as
an incentive by migrants.
Insufficient cooperation. Although the need for more stable and prompt
cooperation is now broadly acknowledged, many obstacles remain.
Language is one, especially if vehicular languages, such as English, are not
yet diffuse even between senior officers. Technology is another obstacle.
Not only assuming information is not an easy task, but it may prove
difficult to interpret it properly, especially if different technologies are in
use. Last but not least, all state bodies are generally reluctant to accept
external constraints, to coordinate the work they do in various areas with
that of similar bodies in other countries, to take joint decisions. This is
hardly surprising, however, when considering that only at the end of the
first quarter of the 20th century did the United States set up a Federal
Bureau to fight against crime.
These inadequacies lead to inefficiencies in the use of the inevitably
scarce resources that states can muster in order to ensure the rule of law
and protect the interests of the community they represent. Not only does
this prevent the development of joint strategies, but it can even lead to the
misuse of state powers. Moreover, often it is hard for them to reconcile
security with safeguarding liberties and rights.
2.
The European rescue of police powers?
In order to reduce the asymmetry vis-à-vis individuals and groups, the
states cooperate in many forms. Governments and administrations
5
For more on these discrepancies, see Cassese (1997).
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 239
increasingly engage in the exchange of information and assistance beyond
what is required by their respective legislation, for example in the fight
against terrorism. Sometimes, even the courts affirm their jurisdiction over
events that have occurred elsewhere. The rulings of the British House of
Lords, in a matter initiated by a Spanish magistrate regarding former
Chilean dictator Augusto Pinochet, are only the best-known illustration of
this development.6 As far as the European arena is concerned, cooperation
with regard to public order has taken on a variety of different forms that
ultimately can be traced back to three paradigms. These paradigms are not
logically linked to one another, nor are they sequentially connected, in the
sense that one follows or is replaced by another. Rather, they have coexisted and to a considerable extent still do. The three are straight vanilla
intergovernmental or ‘voluntary’ cooperation with or without multilateral
agreements, cooperation among all EU member states and enhanced
cooperation among some of the latter.
Up until the mid-1980s, intergovernmental cooperation took place
entirely outside Community provisions. It covered a variety of different
subjects: initially immigration and asylum rights, then terrorism and the
fight against transnational crime. Cooperation implied adopting legally
binding agreements or significant – albeit non-binding – texts such as
conventions and recommendations. It also meant developing information
exchange, and setting up structured counterpart panels of national experts.
Other changes occurred during the years 1985-86. First, the European
Single Act strengthened the constitutional status of individuals’ freedom of
movement whilst codifying the widening of the competences of the
European Community. Second, the Schengen Agreement was enacted by a
few countries (five of the six founding countries, with the initial exception
of Italy). It aimed at eliminating internal border controls and strengthening
controls at the external border level. The agreement was subsequently
extended to other countries several years later, when they adapted their
administrative systems. Eventually, the Community itself extended the
scope of its own jurisdiction with a view to include this agreement within
its institutional framework.
6 See Volcansek & Stack (2005) and Bianchi & Naqvi (2004). See also Slaughter
(2005) for the thesis that the global interaction between judges and administrators
generated a new world order.
240 | GIACINTO DELLA CANANEA
Ever since 1992, EU member states have been actively involved in the
establishment of the Freedom, Security and Justice Area provided for by
Article 2 of the Maastricht Treaty (TEU). As a result, the treaty covers a
broad range of fields, including asylum and immigration policies,
combating drug addiction and customs and police cooperation,7 which
regard the compétences régaliennes, a domain that states jealously retain. This
explains the specificities of the action of the Union. First, its functions are
carried out in a partially distinct legal and political environment, as it
emerges by the ‘third pillar’ metaphor (the second being that of foreign and
security policy). Second, decision-making procedures are based on
unanimity, instead of majority-voting. Third, and also its final outcome,
namely the acts differ from those of the EC, including common positions,
conventions and other documents. Fourth, it was found that genuinely
supranational institutions, such as the European Commission and the
European Court of Justice, enjoy only a marginal role.8
3.
An area of freedom, security and justice
At the end of the 20th century, a further constitutional change was
introduced through the Amsterdam Treaty (1999). Various fields or subfields were shifted from the third to the first pillar: policing of external
borders, asylum and immigration and judicial cooperation in civil cases,
which is the focus of a recently adopted convention involving third-party
countries such as Switzerland. For other fields, the role of the Community
has been specified (Article 29 of the TEU).9 The salient change is that public
functions in the field of justice and home affairs are legally and not only
politically determined by the goals and rules established by the European
Union.10 This does not mean, however, that the states concerned have
renounced pursuing their own active policies in these fields. Rather, it
implies that national authorities have to abide by common rules and
decisions. Closer cooperation is thus made possible not only by the sounder
7
See Monar (2003, p. 497) and also Delmas-Marty (1996).
8
See Tosato (2000, p. 331).
9
See Adam (1999, p. 225) and Alvarez (2005, p. 27).
Drawing a line between the ‘territory’ concept (once considered an essential tenet
of the state, on par with the ‘people’ and ‘sovereignty’) and that of ‘area’ is
essential. For a political scientist’s view, see Monar (2003, p. 497).
10
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 241
legal basis provided by the treaty, but also by the definition of new
categories of legally binding acts. For example, framework decisions are
binding as to their goal, as are directives, but with no direct effectiveness.
These new instruments, together with ‘Decisions’, supplement common
positions and conventions, the adoption of which is recommended to
member states. The latter may enter into force in the adopting member
states, unless otherwise specified, once at least half of all member states
have indeed adopted them. No attempt has been made even partially to
unify national legal systems: constitutional traditions proved far too
different for that to be contemplated (the centrality of trial by jury in
common law countries is but one of the most evident examples). If
anything, this may emphasise the need for some measure of convergence
among national parliaments, through the removal of structural obstacles.
Further progress has been made in recent years.11 As regards
organisational issues, several steps have been taken to strengthen the action
of Europol, an agency set up in 1995 with a view to coordinating the
operations of national administrations. The head of Europol is now
authorised to enter into external agreements. A European judicial network
has been put into place12 – and acknowledged by the 2001 Nice Treaty –
which has Eurojust at its centre. New networks have thus been added to
pre-existing Community and national structures. At the same time, the
principle of information availability has been stressed. This means that the
information available to specific bodies in a given state must be provided to
counterpart bodies in other states. A further requirement has been added:
to the extent possible, information thus exchanged must be sent using
modern technology. Even more important from a legal standpoint has been
the replacement of traditional extradition procedures with the European
This has been acknowledged, albeit critically, in a European Parliament
Resolution on “Progress made by the EU in creating an area of freedom, security
and justice”, adopted 30 November 2006.
11
Joint action No. 98/241/GAI. The Justice Ministries are clearly involved in a
number of different cooperative projects, as evidenced by the fact that they
participate in meetings of the following groups and committees: a) committee on
Article 36, b) multidisciplinary group (justice and home affairs) on organised
crime, c) horizontal group on narcotics, d) group on cooperation in criminal law
proceedings and e) European judicial network group.
12
242 | GIACINTO DELLA CANANEA
Arrest Warrant (EAW).13 This is a streamlined procedure that the judiciary
may use to obtain the handing over of convicts or suspects. For a number of
explicitly listed crimes, this handing over is possible regardless of dual
criminality considerations, provided that the maximum sentence to be
incurred is at least three years. Thus, not only has cooperation between the
states extended to the power to punish, but their legal systems now
increasingly practice mutual recognition (as reiterated in TEC Articles 61
and 61 C, as modified by Treaty of Lisbon (hereafter, ToL) Article 64).
This approach, initially used to build the single market, presupposes
and strengthens principles that are part of a shared constitutional heritage.
At the very core of this heritage lies the principle of the legality of crimes
and punishment. Interpreted in the light of mutual recognition, it allows
for exceptions to the dual criminality rule. The basic assumption is that the
high degree of confidence established among public institutions is such that
the criminal law of any given country is deemed to constitute a valid legal
basis for the exercise of legal proceedings in another. A second shared
principle is that of equality and non-discrimination. This is safeguarded by
the list of crimes published in the Framework Decision, which ensures legal
certainty, at least to a certain extent. It does not, however, rule out there
being different implementations in different countries. On the other hand,
the Framework Decision admittedly does not aim to harmonise substantive
criminal law in member states.14 A third principle, which is usually referred
to as ne bis in idem, prevents the possibility of sentencing someone twice for
the same crime. According to the European Court of Justice, the rationale
for this stems from the need to avoid having the same individuals taken to
court for the same sets of facts in more than one member state, as this
would impose an excessive limitation on their freedom of movement. Thus
Framework Decision No. 20027584/GAI, of 13 June 2002. The uniform
implementation of the framework decision was called into question following a
ruling handed down by the German Constitutional Court in the Darkanzali case,
which partially voided the national implementing regulation, stating that it
conflicted with constitutional principles of the rule of law. Cases concerning
Belgian and Polish constitutional courts are reviewed in Siegel (2008).
13
European Court of Justice, 3 May 2007 ruling, Case C-303/05, Advocaten voor de
Wereld VZW v. Leden van de Ministerraad. The convergence of criminal legislation is
granted if necessary under new TEC Article 61, while recourse to legislative
procedures can only lead to minimum rules (Article 69 A).
14
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 243
defined, the principle applies not only to cases where individuals have
been deemed not guilty as to substance, but also when the non-guilty
ruling has been handed down for reasons relating to statutes of
limitations.15
4.
From the Laeken Declaration to the Lisbon Treaty
A further development in the definition of the Union’s new constitutional
framework was initiated in December 2002, at the European Council
meeting in Laeken. On this occasion, member states expressed their
intention to further strengthen their cooperation, including through the
adoption of new institutional provisions. A revision process of both the
Treaty of Rome and the Treaty setting up the European Union thus begun
and gave rise to the “Treaty establishing a Constitution for Europe”, which
clarified the functions of the EU, identified new instruments and corrected
a number of rules relative to decision-making.16 However, the Treaty was
rejected by some countries (France and the Netherlands, following the
failure of referendums) and eventually did not enter into force.
Following further negotiations, some of the more significant
innovations agreed in 2003 were included in the Treaty entered into in
Lisbon on 13 December 2007, which modified the constitutional rules of the
European Union as well as those relative to its functioning. Provisions
regulating Union jurisdiction in the fields under review have not been
changed. The legal principles and goals to be pursued by public institutions
have however been restated, and new principles introduced. All this will be
considered from two points of view, which aim at identifying the more
relevant changes introduced and shedding some light on the substantive
logic that underpins them, respectively.
The first change concerns the Union’s goals. The new treaty specifies
that within the area of freedom, security and justice, the freedom of
movement of persons shall be safeguarded, and the adoption of
appropriate measures to ensure external border control, asylum,
immigration, as well as the prevention and combating of crime (TEU
European Court of Justice, 28 September 2006 ruling, Case C-467/04, G.F.
Gasparini.
15
16
See Ziller (2004).
244 | GIACINTO DELLA CANANEA
Article 2, as modified by ToL Article 4), guaranteed. Responsibilities taken
on vis-à-vis citizens and third-party nationals are significant: the Union is
“to ensure a high level of security” (TEC Article 61, as modified by ToL
Article 64).
The second change derives from the relinquishing of the three-pillar
approach to the European Union’s powers. This is further demonstrated by
the fact that legal safeguards are to be provided for in the framework of
administrative measures taken to prevent or combat terrorism, while
directives are contemplated to facilitate cooperation between police and
judicial authorities, in addition to the mutual recognition of judicial
decisions (TEC Arts. 61 H and 69 A, as modified by ToL Article 64).
These developments do not imply that the specific features
mentioned earlier with regard to decision-making procedures do not exist
anymore. A number of changes to those rules have nevertheless been
defined. Some are of a very general nature, and focus on the establishment
of enhanced cooperation (§8). Others are more specific, and can be quite
relevant: in order to protect the financial interests of the Union, including
against crime, the Council may adopt regulations on a unanimous basis. In
the absence of unanimity, however, a group of at least nine member states
may request that the matter be referred to the European Council. If no
consensus emerges within four months, and should the nine member states
wish to proceed with enhanced cooperation, they shall notify Union
institutions accordingly and “in such a case, the authorisation to proceed
with enhanced cooperation (…) shall be deemed to be granted” (TEC
Article 69E).
The essence of this new legal framework is characterised by two
features. First, the task to strike an appropriate balance between authority
and liberties is no longer the exclusive responsibility of the member states.
It is shared with the EU. Second, however, the new legal framework allows
national public institutions (governments, administrations, judiciary) to
operate in a context that is clearly more favourable than that which prevails
outside the EU. Such a legal framework does not preempt state jurisdiction,
nor does it erode their legal – or political – responsibilities. In particular,
coercive powers remain the province of national authorities even though
the legal framework that determines the legitimacy of their use increasingly
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 245
bears the mark of the European Union’s rules and operations.17 In other
words, this new development has further stressed the fact that the Union
has taken an increasingly administrative turn, and that progress has been
far less marked in terms of political consolidation. Time will tell whether
one dimension can develop independently of the other and if so, to what
extent.
5.
Issues of efficiency and safeguards
After this cursory review of the new legal framework, two different sets of
questions may be considered. The first is whether interactions between new
and old holders of authority, i.e. the European Union and its member
states, are likely to offset the asymmetry that leaves private players in a
disadvantageous situation, in particular transnational organised crime.
Clearly, the ability to exercise control over private players cannot be
assessed solely as a zero-sum game between public institutions. It may be
more than that, or less. The issue, however, is whether cooperation within
the EU limits the undermining of state bodies’ powers. This issue must be
reviewed separately from another, which is more frequently addressed in
government studies. Improving the ability of government officials and
government bodies and departments to reach and implement decisions
beyond national borders may lead to a gradual qualitative and quantitative
drop in the safeguards provided by public legislation.18 There are different
views as to the scope for strengthening such safeguards within states, as
opposed to rebuilding them within European law. However, one point
should be absolutely clear: not only are safeguards needed as regards the
exercise of such powers, but also adequate forms of accountability,
according to the principles of constitutional government.
On the first of these levels of analysis, that of public decision-making
and implementation effectiveness, there are several obstacles. The very fact
that decisions have to be reached with several member state governments
implicitly entails a number of heavy burdens, which add on to the specific
constraints and limitations that justice and home affairs departments have
to contend with, and that have no EU equivalent. The Commission’s ability
For a convincing theoretical overview of these issues, see Diez-Picazo (2005, p.
133).
17
18
See Weiler (1999).
246 | GIACINTO DELLA CANANEA
to take initiative, to set the agenda of the EU or to mediate between specific
interest groups and governments is far less developed than that of states.
As regards international agreements, for instance, it can at best support the
Presidency in the launching of negotiations.
Furthermore, the fact that the Community has not one, but a number
of different decision modes (different types of majority, unanimity,
consensus) ensures the prevalence of dialectics, and can be construed as
positing efficiency in their use. Justice and home affairs decisions, however,
remain bound by rules of unanimity. This is not necessarily a bad thing.
Unanimity requirements may ward off overly hasty decisions that do not
properly take into account specific interests and circumstances. This may
lead to trade-offs and the emergence of comprehensive agreements among
national governments, provided that the Commission acts as an efficient
and impartial mediator. But unanimity may also jeopardise the adoption of
indispensable decisions or at the very least, postpone them. A way out
exist, anyway, with so-called ‘bridge’ provisions allowing for unanimitybased votes to rule on shifts to majority voting. This has however remained
largely theoretical. As a result, many of the proposals put forth have
proved difficult to translate into actual concrete decisions and action.19
If the Union’s decision-making ability is thus constrained, that of
individual member states appears even further weakened.20 The accession
of 14 new member states between 2005 and 2007 has extended freedom of
movement to their citizens and eliminated internal borders. As always, this
generates both opportunities and risks. The opportunities resulting from
this extended freedom of movement can hardly be assessed. Nor is it
possible to rule out the possibility that risks may yet materialise, in
particular in the form of increased security gaps. Governments and
parliaments may thus be tempted to move away from the high ground of
cooperation or, at the very least, to add new conditions and limitations to
On this point, criticism voiced in the European Parliament Resolution on
“progress made by the EU in creating an area of freedom, security and justice”
mentioned above, i.e. multiple legal bases, delays in the activation of ‘bridges’, lack
of genuine democratic controls, has certainly retained its topicality – if one
disregards some of the democratic deficit rhetoric.
19
The nature of this paper does not allow me to address the distinctive features of
negative and positive integration. See Stone Sweet (1998, p. 9).
20
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 247
existing cooperation schemes. Clearly, conditions and limitations may be
imposed by national courts on EU legislation, as happened in the UK
legislation with respect to the European Arrest Warrant. But this may also
elicit further reaction from national politicians faced with what they feel is
undue interference on the part of non-elected magistrates and the
European law they uphold.
In the meantime, obstacles continue to preclude the full realisation of
those ‘values’ on which the European Union is based. At the heart of such
values lie the preservation of democracy and the rule of law, the protection
of rights and fundamental freedoms (TEU Article 6). They have a two-fold
meaning. Insofar as they are absolute prerequisites for Union accession,
states that do not meet either of these criteria will not become members.
Moreover, Community institutions are designed to promote and pursue
these values through their work.21 And yet, from the point of view of
effectiveness, the relevant Treaty provisions contain a number of enduring
inadequacies.
The most salient inadequacy regards mechanisms designed to ensure
that policy-makers are accountable. National parliaments have very
different levels of effectiveness in terms of the checks and balances they
enforce vis-à-vis their individual governments. Moreover, they are illsuited structurally to engage in checks or the supervision of decisions
reached at the European level. This applies particularly to decisions taken
by majority vote. As regards the European Parliament, it may well have
general consultative jurisdiction, but this does not adequately offset the
Council’s right to reach binding decisions.22
More significant progress has been achieved with regard to judicial
safeguards. The Court of Justice not only has jurisdiction over compliance
with Community powers;23 under TEU Article 35, the Court has ‘consistent’
See von Bogdandy (2006). On issues of immigation and asylum, see an
interesting clarification in Guild & Harlow (2001).
21
See Satta (2003, p. 254). For a general assessment of the various forms of
accountability, see Peers (2005, p. 253).
22
Moreover, the Court has asserted jurisdiction in matters pertaining to
infringement of Community powers in its 12 May 1998 ruling, Case C-170/96,
Commission v. Council. It has furthermore ruled that framework decisions are
binding in its 16 June 2005 ruling, Case C-105/03, Pupino. For a critique of the
23
248 | GIACINTO DELLA CANANEA
powers, which include preliminary rulings regarding the validity and
interpretation of framework decisions, decisions and relevant measures of
implementation. The exercise of such power is optional, however, and
subordinate to specific requests expressed by one or several member states.
Accordingly, a potential wedge has been introduced among legal
safeguards. The fact that most member states have so far agreed no doubt
attenuates the problem, but the issue still remains. In addition, the
jurisdiction of the Court does not include any review of the validity and
proportionality of the measures taken for purposes of law enforcement and
domestic security. An equally serious flaw concerns individuals’ and
groups’ legal standing. In the framework of the EC, though these players
have a less favourable position than Community institutions or member
states, they have the right to challenge both decisions that are of direct
relevance to themselves and regulations that contain concealed decisions.
By contrast, in the field of justice and home affairs, a similar right does not
exist.24 For those who hold that legal remedies are by far more significant
than solemn declarations of rights, since the former ensure the effectiveness
of the latter, this shortcoming is more serious than the Charter of
Fundamental Rights’ lack of binding legal effects, let alone the fact that
access to justice is included by the ECJ within the general principles of
Community law that it draws from member states’ shared constitutional
traditions, as well as from the European Convention on Human Rights. The
question thus arises whether EU courts are ready to show that they are
aware of the need to uphold such principles even when law enforcement
and collective security interests are at stake. While the first decisions taken
by the lower court with regard to anti-terrorism measures raised serious
concern, the ECJ has argued that the noyeau dur of fundamental rights must
be protected even in such cases.25
allegedly inadequate innovations introduced by the Treaty of Amsterdam (“a
missed opportunity”), see Guild & Peers (2001, p. 284).
Court of First Instance, Case T-228/02, Organisation des Modjahedins du peuple de
l’Iran v. Council.
24
See CFI, Case T-315/01, Kadi v. Council of Ministers and Commission and ECJ,
Joined Cases C-402/05 P and C-415/05, with comment by della Cananea (2009, p.
511).
25
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 249
6.
Future Prospects: ‘Choral’ cooperation and trail-blazing
initiative
The observations made thus far imply that inadequacies remain not only
regarding specific checks and balances, but also with regard to the general
structure of the system as well. Such inadequacies concern the ability to
choose, decide and act, as well as the corresponding safeguards. Defining
the way forward on the basis of this analysis, however, is not obvious.
There may be some consensus among institutional and academic circles
regarding the very existence of such inadequacies, but the way in which
they might possibly be remedied elicits dissent. At the cost of somewhat
oversimplifying the issue, two opposite positions may be identified.
The first of these positions coincides with the ‘official’ stance taken by
the Union, as evidenced in particular by political documents produced by
the Commission and the Parliament. Moving towards a more united
Europe is a wish solemnly underscored by all national policy-makers, even
regarding the two major areas where intergovernmental cooperation has
prevailed over the so-called ‘Community method’. In fact, member states
often do not follow traditional avenues. They have often opted for specific
solutions, but this has not appeared to alter the basic political choice (and
the underlying mutual trust) of European leaders to proceed together
towards a closer Union. Removing obstacles to trade and competition
seems to have yielded, over the 50 years spanning the shift from ‘common’
to ‘single’ market, considerable benefits in terms of efficient resource
allocation. Centralised currency management has further contributed to
guaranteeing stability and protecting European economies from the
turmoil of this last decade, despite the severity of the last financial crisis.
According to this line of reasoning, choosing to move together towards
ever-closer ties is by far the best way forward. Otherwise, further benefits
of cooperation among member states may be at risk. Even current benefits
could be jeopardised, should institutional issues become increasingly
complex, unity increasingly frail and the public’s understanding of these
issues ever dimmer.
The opposite position underscores the advantages of differentiation –
strengthened cooperation and avant-garde initiative.26 The basic assumption
For an analysis of enhanced cooperation, see Ehlermann (1997, pp. 51-90). An
updated analysis of the logic of differentiated integration is to be found in Klliker
26
250 | GIACINTO DELLA CANANEA
is that the institutional structure of the European Union may be singularly
complex, and its processes at times lacking in transparency. However,
nation states, simpler in their uniformity and centralisation, are not an
adequate source of benchmarks. Empirical analysis provides some
evidence. Consider Economic and Monetary Union. Economic theory does
not single out unassailable potential pros and cons. Implications for
national interests are perceived in different ways not only by national
governments, but by public opinion as well. Choosing to differentiate
accession paces and modalities has thus helped some countries improve
their position, while others were granted the right to wait for better
conditions or circumstances. Further proof of the value of this method is
provided by the Schengen Treaty. Initially entered into by five member
states, and thus positioned outside the purview of the European
Community, the Treaty was later signed on to by other countries. It does
not rule out exemptions, in special circumstances. Yet further proof is
provided – should any be required – by the Prüm Treaty. Entered into on
27 May 2005 by five of the six founding member states, Austria and Spain,
the instrument remains open to general accession. It aims at enhancing
trans-border cooperation, to fight against terrorism, organised crime and
illegal immigration. It permits a level of cooperation unthinkable until few
years ago, including organising and exchanging information on DNA,
fingerprints, introducing air-marshals and repatriating illegal immigrants.
Cooperation between and among trail-blazing countries thus allows public
authorities to take steps that are more effective. They can use confidential
information, gradually made available to all those concerned, on the basis
of bilateral relationships.27
Such positions should not, however, be regarded as conflicting, but as
complementary. The complementarity stems, first, from the fact that the
political and institutional paradigm of Europe cannot be the same as had
been designed initially, under very different circumstances. So many
sudden and unexpected events occurred: the collapse of the Communist
(2005). New rules applicable to enhanced or strengthened cooperation can now be
found in TEC Section III, as modified by ToL Articles 277 and 278.
See Brady (2005). There are further references to conventions entered into by
member states in the field of judicial cooperation and law enforcement in Amato
(2007, p. 229).
27
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 251
bloc, growing domestic opposition in Islamic countries, the proliferation of
international terrorism. The initial framework must in addition be adapted
to the changing nature of a polity that was adequate for the six founding
countries, but already proved inadequate in 1995. It is still more inadequate
after the last enlargement, including countries that are both different from
one another and especially with regard to the founding member states.
Believing that all Western European countries would immediately agree to
French Foreign Minister Robert Schuman’s project28 was not a realistic
proposal in 1952. Expecting all 27 member states to always agree on
essential policy choices is not realistic today. Conversely, should a limited
number of countries engage in various forms of innovation, they may hit
upon different solutions and develop closer, albeit non-exclusive ties. There
appear to be no legal or political obstacles thereto, insofar as basic
government principles (such as the separation of powers or unitary
administrative organisation) devised for states at the acme of their
development do not apply to the European Union. Lawyers and political
scientist are aware that the Schengen Treaty experience shows that states
may embark on the high road of integration together, and yet do so at
different paces and according to different modalities.29 This line of
reasoning can be taken one step further still, so as to assert that a number of
valid reasons, both ideal and pragmatic, today call for a parallel deepening
of Community method-based integration and consistent trail-blazing
developments in justice and home affairs cooperation. Though one should
not rule out, for that matter, the activation of decision-making processes
deriving from the Community’s traditional method.
7.
Implications for checks and balances
The above-mentioned way forward – a combination of united progress and
initiative by an avant-garde – has several implications, some of which
28
See Monnet (1976).
Denmark, the United Kingdom and Ireland do not fully take part in a set of
decisions concerning justice and home affairs, or they take part under specific
circumstances. Thus the United Kingdom and Ireland are not party to Schengen
provisions relative to the freedom of movement of persons, external border
controls and visa policy. At the Council level therefore, representatives of these
countries do not vote.
29
252 | GIACINTO DELLA CANANEA
require proper clarification. These relate both to safeguards, and to that
other area of intergovernmental cooperation, i.e. the EU’s Common Foreign
and Security Policy.
What is required is both discretion and flexibility. Discretionary
powers are necessary to assess the solutions best suited to preserve
collective interests in the fields of enforcement and security. Flexibility is
necessary in the selection of legal instruments and effects. Historically and
logically, discretion and flexibility first appeared in the framework of
states’ public order functions for at least two reasons. The first of these is
functional by nature. Preventing and punishing forms of behaviour that are
a threat to collective interests assumes the ability to adapt and respond to
trends and events that are only partly foreseeable and unlikely to fit into
preordained models. The second reason is perhaps more important, from
the point of view of the institutional framework. It has to do with
jurisdiction and authority among the higher echelons of executive power,
the exercise of which has to be contained by a number of specific doctrines,
limits and controls.
The need for these checks and balances is particularly keen regarding
interstate activities. The establishment of organisational and procedural
agreements to acquire, process and share confidential information,
regarding the more sensitive data available, can prove risky both to those
receiving this information and to national governments, for reasons of
comprehensive transparency. Developing special relationships among and
between public administrations, beyond the scope of regular diplomacy,
will strengthen government over parliament. New legal instruments such
as the European Arrest Warrant undermine the traditional safeguards
provided by ad hoc procedures devised to check that requirements for
extradition are indeed met.
The range of institutional safeguards must therefore be extended in
different ways. Should the British approach based on administrative and
judiciary remedies (ombudsmen, tribunals and boards) prove overly
informal – and the French, grounded in the assertion of Treaty-enshrined
rights, overly formal – a median solution could usefully be sought out in
two ways: through explicit reference to the European Convention of
Human Rights, which is what Article 6 of the Treaty of Lisbon does. A
further positive innovation would be a clear mandate to the Court of Justice
to assess on a case-by-case basis the balance of interests thus achieved
under the ‘margin of appreciation’ doctrine developed by the European
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 253
Court of Human Rights. This would both allow for rigor in terms of general
principles, because of the reference to the norms of the ECHR, and provide
flexibility. Additional and supplementary steps would then to be adopted,
in particular regarding compensation to be provided to individuals and
associations, not to mention the possibility of voiding legal instruments
that have entailed said compensation claims.30
Although this would increase the level of safeguards provided to
individuals and groups, one must not forget the more general requirement
of reconciling flexibility and discretion on the one hand, and transparency
on the other. Transparency or rather disclosure per se is positive and
therefore cannot be renounced. It is the distinguishing feature of
democratic, as opposed to authoritarian regimes.31 It supports and lends
legitimacy to flexibility and discretion. For functional reasons, it is not
possible to exclude that public policy implementation, especially regarding
home affairs, may have its times of opaqueness. However, should this
prove persistent and prevalent, in the long run, public policy
implementation would lose its very rationale. Clearly, disclosure is not
tantamount to adherence to strict, predetermined rules. But it must at the
very least mean that policy guidelines and concrete measures are subject to
ex post checks, on the basis of unambiguous criteria. This is the prerequisite
of accountability.
8.
Implications for the Union’s Foreign Policy
Strengthening cooperation in the fields of justice and home affairs, even
through avant-garde initiatives, also has implications for the Union’s
Common Foreign and Security Policy.
The global dimension of issues arising in the field of enforcement and
security requires that parallel strengthening be undertaken in the external
dimension of the European Union. This can be achieved through both
informal and formal agreements through special agreements with thirdparty countries, as with the United States in the weeks that followed the 11
September 2001 attacks on New York and Washington. Much has already
been achieved, but much remains to be done in this field, including with
30
On this, see Ackerman (2006, p. 51).
31
See Bobbio (1986, p. 175). See also Curtin (2001, p. 35).
254 | GIACINTO DELLA CANANEA
other NATO member states, and in particular with Turkey (this might,
incidentally, help develop cooperation with a view to possible accession).
At the same time, the Union can, and probably should, exercise jurisdiction
by promoting agreements with other third-party countries as well as with
intergovernmental bodies,32 within which the common position of member
states would be defined, as specified in TEU Article 37 (former Article K.9).
Thanks to the Amsterdam Treaty, there are no doubts as to the ability
of member states to enter into such agreements under the Third Pillar. The
issue is rather whether all member states are automatically bound by such
agreements. One possibility could usefully be explored and expounded
upon by other fora: it involves the opting-out provision of which member
states may avail themselves for specific reasons linked to their Constitution
(TEU Article 24, former Article J.14), when specific agreements are entered
into. This allows for agreements with differential implementation and for
developments in line with a mix of united progress and trail-blazing
initiative. One may therefore assume that countries agreeing to cooperate
more closely in order to exercise public order functions will also enter into
agreements with third-party countries. Obviously, customary validity
requirements will need to be met: non-interference with the interests and
functions of the Community, compliance with the general principles of
Community law, opening of accession procedures to all member states
with the political will to do so, provided they meet the requisite criteria and
preconditions specified by contracting parties.
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Age of Terrorism, New Haven & London: Yale University Press.
Adam, R. (1999), La cooperazione in materia di giustizia e affari interni, in Il
Trattato di Amsterdam, Milan: Giuffrè.
Amato, G. (2007), “Unione: Le tentazioni sbagliate”, in Il Mulino, No. 2, p.
229.
In this respect, Opinion No.1/07 handed down by the Court of Justice on 7
February 2007 is significant, insofar as it allows for a new convention on judicial
cooperation in civil matters with Switzerland, Norway and Iceland.
32
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 255
Bianchi, A. and Y. Naqvi (eds) (2004), Enforcing International Law Norms
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No. 44, October-November.
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Ehlermann, C.D. (1997), “Différentiation, flexibilité, coopération renforcée:
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Jurisdiction over Immigration and Asylum”, in E. Guild and C.
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Monnet, J. (1976), Mémoires, Paris: Fayard.
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14. THE ROLE OF PARLIAMENTS IN THE
DEMOCRATIC LIFE OF THE UNION
ANDREA MANZELLA
1.
The democratic principles of the Union and national
parliaments within the European parliamentary system
The role of national parliaments in the ‘proper functioning’ of the Union is
considered in the new Treaty of Lisbon as an informing principle of
European democracy. Together with the principles of democratic equality
(the ‘equal attention’ shown to all citizens by Union institutions),
representative democracy (the ‘direct representation’ of citizens in the
European Parliament) and participative democracy (legislative initiative,
consultation, citizens’ dialogue with the Union’s institutions), we now have
this principle of national parliamentary democracy, which is generally
anchored to the guiding concepts of subsidiarity and proportionality, and
more specifically linked to a variety of co-decision procedures regarding
the area of freedom, security and justice, constitutional revision and new
member state accession.
Deciding to give national parliaments a direct role (without
government intermediation), which is listed among the fundamental
principles of European Union action, meets a political requirement.
Opposition to the Union’s oft-mentioned ‘democratic deficit’ did in fact
reach its acme with the French and Dutch referenda. A visible and popular
way of increasing the European constitution’s ‘democraticity rate’
somehow had to be devised. Granting more power to national parliaments
was the easiest way forward, for a double, reassuring reason.
First of all, this helped convey the message that the ‘distant
constitution’ (a symbol, however, of countless perils such as the
dismantlement of the welfare state, the free circulation of out-of-control
migration, industrial relocation...) was being subjected to the supervision of
age-old, familiar national parliaments. Secondly, this helped reduce,
| 257
258 | ANDREA MANZELLA
through ‘parliamentarisation’, the scope of ‘handed-down’ institutional
innovation and its constitutional features, in an attempt to avoid further
recourse to referendum-based adventures (always dangerous when
ratification of international treaties is at stake; it is no accident that this is
an area non-eligible for referendum in Italy’s 1948 Constitution).
The anti-referendum function was the dominant reason
underpinning the Union’s decision. The “no” of French and Dutch voters
had in fact first and foremost been a disavowal of national governments
and parliaments – who favoured, by an overwhelming majority, the
Constitutional Treaty. A further refusal by referendum therefore risked
challenging the very representativeness of national governments and
parliaments. In other words, by taking on a direct safeguard role in the
EU’s decision-making mechanisms, the latter were in the end protecting
themselves against a domino effect of de-legitimisation.
These substantial political reasons are however not equally valid in
institutional terms, insofar as the powers granted to national parliaments
can actually produce a blocking effect in the EU’s already laborious
decision-making process.
The new role given to national parliaments in the Union has in fact
two different dimensions corresponding to two different – actually,
opposite – views of democracy in Europe. It therefore all depends on
whether the Union’s ‘democracy’ is to be measured by the yardstick of
systematic connections between various democratic legitimacies
(governments, the European parliament, national parliaments) taking part
in Union decisions, or conversely by a parameter linked to old strictly
national decision-making powers conferred to national parliaments on
community issues, or to pre-federal concepts (direct election of the
President of the European Commission, transnational lists for the European
parliament, European referendums...). As the old convergence-of-extremes
rule would have it, these two opposite concepts have in fact both
contributed to the birth and growth of the democratic deficit myth: which
clearly appears impossible to correct if one reasons in terms of such
parameters, and not in terms of European Union history and institutional
status.
Regarding the first aspect, the role of national parliaments takes on
three different modalities, concerning:
a)
the powers granted to national parliaments in specific procedures.
The principal innovation consists of the right to take part in the
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 259
‘conventions’ for Treaty revisions. Of higher strategic significance
because of their impact on the ‘ordinary’ integration motors appear
the powers of national parliaments related to the flexibility provisions
inserted into the Treaty: the bridging clauses leading to simplified
revision and voting procedures (Article 48 of TEU) and the
“historical” clause permitting an extension of the Union powers
(Article 352 TFEU);
b)
the right of national parliaments to receive Community information
directly; and
c)
their right to exercise advisory and policy orientation functions either
through COSAC, the body bringing together the national parliament
committees dealing with Union policies, or more importantly
through ‘effective’ and ‘regular’ inter-parliamentary cooperation
involving national parliaments and the European Parliament.
As to point a) above, the German Constitutional Court has evidenced,
by means of its recent decision of 30 June 2009, how the involvement of
national powers may significantly aggravate the European integration
process in its entirety. The Court has confirmed the openness to Europe of
the German constitution and what may be described as the ‘communicating
vases’ theory (the powers taken out of national parliaments can be
compensated by those vested in the European Parliament). Nevertheless,
the stringent request for prior approval of the German parliament will
cause an ‘indirect’ rigidity of European decisions on numerous areas.
As to points b) and c) above, these are powers and rights not only
appropriate to the Union’s multi-tiered constitutional model but actually
essential to the Union’s proper functioning. Joint and equal institutional
communication is indeed indispensable in order to give actual substance to
the interplay between various institutions. Each institution requires
channels of interference with all the others, as this is how the Union’s
decision-making process fully and seamlessly acquires legitimacy.
Likewise, the principle of loyal cooperation among various institutions
within the system requires visible inter-institution connections and
interfaces (through ‘inter-parliamentary conferences’, short-hand for which
could be the ‘COSAC formula’, where special delegations from the
European Parliament and relevant national parliamentary committees meet
with a view to expressing a majority opinion on specific topics). On this last
point, the most significant from the point of view of the system’s
institutional equilibrium, the new “Protocol on the role of national
260 | ANDREA MANZELLA
parliaments” interestingly includes an indirect broadening of European
Parliament jurisdiction to issues of “common security and defence
policies”. Organising inter-parliamentary conferences on such topics with
the specialized committees of national parliaments actually confers to the
European Parliament a potential right to scrutinise areas that the treaties
still consider to be the exclusive prerogative of national parliaments (as
shown by a later and almost maniacal statement according to which treaty
provisions regarding CSDP do not prejudice the specific nature of member
states’ security and defence policies).1
Setting aside specific problems, the Protocol’s mention of interparliamentary conferences is in line with the interaction required for
effective cooperation, typical of multi-tier constitutional systems. Clearly
this multilateral consultative participation in the decision-making process
is the key to the Union’s democraticity, insofar as it specifies the
connections of the various democratic legitimacies exercising different
powers but equally ‘responsible’, through their different investiture
mechanisms, vis-à-vis Europe’s voter constituency.
Regarding the second aspect, national parliaments’ role under the
new Protocol involves procedures regarding the appropriate application of
the subsidiarity and proportionality principles. These procedures may
include, depending on the number of national parliaments supporting any
given initiative, simple checks leading to requests for review (with a
quorum of one third of national parliaments) of draft legislative acts
(proposals by the European Commission, initiatives from a group of
member states, initiatives from the European Parliament, requests from the
Court of Justice or recommendations of the European Central Bank). But
they may tantamount to the exercise of an actual veto right, however
One should add that if these ‘conferences’ were to be held with the degree of
regularity generally called for in the Protocol, the survival of the already weakened
WEU Parliamentary Assembly would become very difficult to justify within the
general framework of European bodies. As to the Union itself, providing for
future “structured cooperation in the field of defence” raises issues regarding the
participation of members of the European and national parliaments representing
member states not party to this cooperation (clearly a sensitive institutional issue
for all ‘enhanced cooperation’ groups, even if cooperation in the area of common
defense is only open to states with significant military capacities).
1
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 261
‘concealed’ by a cumbersome procedure (the quorum required then is a
majority of national parliaments) with respect to draft legislative acts
subject to the general co-decision rule. The two procedures are obviously
radically different. While monitoring through requests for review is a
mechanism perfectly consistent with the Union’s specific multi-tier
constitutionalism, the same cannot be said of the ‘veto’ powers, which are
de facto connected to the emergence of a majority among national
parliaments (that is, to quantitative data, two votes per parliament, no
weights for national demographics – however relevant they are to the
Union’s institutional organisation).
The fact that national parliaments could block a draft legislative act
being processed according to the regular legislative co-decision rules does
indeed disrupt the multi-tier constitutional balance. Under an albeit
complex procedure, concealed behind Community legislation’s coactus
tamen volui, one of the system’s components has thus been granted an
improper right to interfere in decision-making. Clearly this interference
cannot be mistaken for the regular, cooperative version typical of modern
constitutional systems (national systems included, where under the
probable influence of EU procedures such ‘federalist’ practices are
becoming increasingly common). On the contrary, this is a genuine
invasion of the Union’s decision-making ground, which does indeed upset
the system’s balance by assigning to national parliaments the (albeit
indirect) power to paralyse the highly sensitive area of legislative initiative.
An area where the appreciation of Community-wide public interest and the
need for Union legislative action can best be grasped by the current
initiative incumbents (first and foremost the Commission, but also the
European Parliament, as well as groups of member states who in their
collegiality do express views that are not strictly nationalistic) – certainly
more so than by a majority of national parliaments, and their chance
convergence on a negative blocking stance. One could add to this, as some
have done, a number of pointed observations on the deficiencies of
enhanced parliamentarisation as a yardstick for Union democratisation. Or,
to put it differently, as a means of appraising a system where interest
representation is organised through checks and balances combining
legitimacy and efficiency – a model far removed from the parliamentary
one currently prevalent in Europe.
One can however object - and this should be borne in mind for any
comprehensive appreciation of the injury involved - that this monitoring or
262 | ANDREA MANZELLA
check only applies in areas where the Union does not have exclusive
jurisdiction, but shares authority with member states. Well, even taking this
objection on board, it is quite clear that (national) parliamentarisation of
decision-making in such areas corresponds on the one hand to a hollowing
out of the Union’s legislative powers – and more specifically of the role
played by governments within the (European) Council of Ministers – and
on the other, to the slotting in, albeit with negative powers, of a third
legislator figure within the EU’s complex institutional balance. The
resulting imbalance is clear to see, even disregarding the perils of decisionmaking paralysis entailed by the new procedure in an already ‘stressed-tothe-limits’ system (knowing that waning of legitimacy always comes in the
wake of a loss in efficiency...).
The procedure moreover does nothing to increase the Union’s
democraticity rate. National parliaments are already entitled to resort,
within their national systems, to effective instruments to control and
possibly block their governments-acting as co-European legislators (think
of Italy – but not only – where the ‘parliamentary reservation’ argument
can be used against the government upstream of all European decisions...).
The procedure clearly impacts the fullness of player legitimization however
(European Parliament, Council, European Commission) within the regular
legislative process. In other words, this is a negative sum game especially
as regards the so-called democratic deficit that it somehow set out to
correct.
2.
The political nature of the subsidiarity and proportionality
principles
The above comments yield an even direr conclusion when one reflects on
the eminently political nature of the subsidiarity and proportionality
principles. This intrinsic political nature is first of all linked to the
fundamental role played by the subsidiarity principle in the concrete
identification of the most appropriate level of government for a given task
(the bias favouring ‘close to the citizen’ political action is nothing but a very
general base criterion, always open to waivers for the higher levels of
government, in order to accommodate requirements of provision scope and
efficiency). The displacement of decision-making levels is clearly a political
act per se, and one of the more significant ones.
This reading is emphasised by the absolutely political criteria that run
through the definition of these principles. Consider the concepts of
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 263
‘sufficiency’ of member state action, of better achievement by the Union of
its goals, of decision scale and effects assessment and, as regards the
proportionality principle (which must however be viewed as an internal
limitation of the subsidiarity principle, as we shall see later in more detail),
the requirement that Community action not go “beyond what is necessary
to achieve the objectives (of this Treaty)”. These are all parameters the legal
effectiveness of which is deeply dependent on their strictly political
appreciation.
One element however provides at least a partial corrective to this
primacy of the political sphere, namely the jurisdiction given (under
Protocol Article 8) to the Union’s Court of Justice. The Court shall indeed
have jurisdiction in actions on grounds of the subsidiarity principle
infringement brought by member states or transmitted by states on behalf
of their parliaments. This provision, which should take on a key role in the
system, calls for at least three comments.
The first concerns the fact that the Court of Justice (following the
tested road taken by authoritative constitutional case law at the national
level) may decide it is the ultimate judge of the appropriateness of levels at
which decisions are made. Even if the legal system assumes that appeals
come from below, it is quite obvious that the Court of Justice can provide
(as in a boomerang effect) legitimisation and consolidation to the Union’s
decision-making over that of appealing states (and their parliaments).
The second comment concerns the possible juridification via case law
of criteria that are per se open to considerable political discretion. The
Court is indeed the authority that can provide legal meaning to the
justification requirement (stated in Protocol Article 5) imposed upon those
bodies entitled to put forth draft legislation. Creative constitutional case
law is indeed the only way to provide legal certainty and finality to
requirements to submit “detailed statements”, “qualitative and wherever
possible, quantitative indicators”, not to mention the taking into account
“of the need for any burden, whether financial or administrative, falling
upon various levels of government as well as “economic operators and
citizens” to be minimized, etc. These requirements, were they to remain
entrusted to political decision-makers, would lend themselves to very
volatile and ambiguous application.
The third comment concerns the peculiarity of a provision – the text
and context of which are both based on the elimination of member state
government intermediation – specifying, with respect to the Court of
264 | ANDREA MANZELLA
Justice, that member states are empowered to seek legal remedies (or
empowered to do so on behalf of their parliaments, should parliaments
take the initiative of an appeal under the subsidiarity principle).
In other words, it is only on the Court’s very threshold that the
subsidiarity principle eludes the rules of an entirely political game, with
decisions taken on the basis of the balance of power struck at a given point
in time among Union bodies and national parliaments. At the current
juncture in the ups and downs of European integration the pendulum’s
swing seems to be favouring, at least at symbolic moments, the granting of
decision-making powers to national parliaments, including in matters of
community significance. A provision such as Protocol Article 8, isolated in
its ‘orthodoxy’, provides a measure of the political and re-nationalisation
effects inherent in the rest of the mechanism.
3.
The irresistible political expansion of proportionality control
National parliament monitoring is exercised solely over draft legislative act
compliance with the subsidiarity principle (Articles 6 and 7). But all Union
institutions shall ensure constant respect for the principles of both
subsidiarity and proportionality (Article 1). And draft legislative act
justification concerns both the subsidiarity and the proportionality
principles (Article 5). That said, both the title and the ‘whereases’ of the
Protocol speak indifferently, when addressing “application” and its
monitoring system, of both principles.
Another very relevant factual clue has to be borne in mind. Namely
that during the preliminary try-outs of the new monitoring system
promoted by COSAC, the reasoned opinions of participating national
parliaments frequently invoked proportionality, as a principle of political
conditionality applicable to positive assessments of subsidiarity, with quite
stringent provisions – inspired by national concerns – regarding Union
action.2
Trial subsidiarity and proportionality checks performed under COSAC auspices
on 17 July 2006 and 31 October 2006 focused on the draft directives regarding
applicable law and jurisdiction in matrimonial matters, COM(2006) 399, and postal
services liberalisation COM(2006) 594.Twenty-two national chambers from 17
member states took part in the first check (on law and jurisdiction in matrimonial
matters). Almost all, with the exception of the Dutch House of Parliament and the
2
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 265
In the face of these formal and substantive elements, one wonders
whether limiting national parliament monitoring solely to subsidiarity3 is
really defensible. And whether conversely the ‘release’ provided by
comments concerning proportionality couldn’t actually be seen as a
contribution – clearly more political still – to the drafting of legislative acts:
but without the delays and other problems connected to the exercise of
subsidiarity checks per se.
In all fairness one has to bear in mind that the proportionality
principle plays out in a field that can in no way be reduced to a legal
dimension, and dealt with solely by the courts. As an internal and
subsequent criterion for the review of ‘subsidiary’ legitimacy it aims in fact
to check that the content and form of action do not go “beyond what is
necessary to achieve the objectives” of the Union. It therefore recalls, in this
matching of means and end, of power and abuse thereof the basic tenets of
a rigorous administrative judicial process, per se irreconcilable with the
‘constitutional’ review of competences, covered by Protocol Article 8 (laden
as it is with other difficulties, regarding access and reference parameters...).
That said, practical experimentation in any event suggests the
advisability of an ‘extensive’ reading of the Protocol: on the one hand, there
is this rigorous fencing in of legally effective controls (whether ex ante and
political, or ex post and juridicial) to the sole area of subsidiarity, while on
the other there is the admissibility, in the absence of any specific legislation,
of a parliamentary practice of ‘observations’ based on the proportionality
Lower House of the Czech Republic, expressed favourable opinions with respect to
the proportionality principle. The second trial check (on postal services) elicited
participation by 27 national chambers representing 21 member states. Luxemburg’s
Chambre des Députés was the only parliament to raise an issue of subsidiarity
principle breach, while 5 chambers pointed out the inadequacy of the
Commission’s justifications in this respect. Seven chambers pointed out a breach of
the proportionality principle and expressed corresponding reservations.
3 This limitation is the outcome of the reasoned confrontation between
‘reductionists’ and ‘amplifiers’ that took place within the Giscard d’Estaing
Convention’s Working Group I on the Principle of Subsidiarity (see, in this
connection, the Group’s report to the Members of the Convention, CONV 286/02,
23 September 2002).
266 | ANDREA MANZELLA
principle, with an obligation for the institution submitting the draft
legislation to respond to such observations in its final justification.
The rationale for this would appear to be the need to avoid having
national parliaments transform their comments on a given project’s
‘proportionality’ into observations regarding its ‘subsidiary’ legitimacy, for
fear the former would not properly be taken into account. The setting up,
through practice, of a parallel and soft procedure regarding proportionality
could therefore be an appropriate counter-measure geared to a trend that
has begun to emerge (as an early warning sign...) in national parliamentary
practice. This trend is well-known to some aspects of administrative law
when it comes to fuzzy lines separating excess of power and legality vices.
4.
The improper interaction of quorums
The main threat of divergence from the legal paradigm that, through crises
and standstills, has nevertheless allowed unprecedented inter-state
integration does not however come from individual national parliaments.
The new Article in the Treaty on European Union regrouping the
previously scattered powers bestowed upon national parliaments provides
them with an enhanced configuration. The powers concerned correspond
however to areas of community law of intergovernmental relevance and
national parliament intervention here ‘mirrors’ that of corresponding
governments.
This applies in particular to participation in the mechanisms geared
to assessing Union policy implementation in the area of freedom, security
and justice, with a view to encouraging the full application of the mutual
recognition principle. In this same ‘area’ national parliaments are said to be
“associated” to the monitoring of Europol activities and to the evaluation of
judicial cooperation activities performed by Eurojust. Similar
considerations also apply to the normal Treaty revision procedure. In this
framework each national parliament has the power to ratify or reject. The
same also applies to national requests of accession to the Union.
The specificity introduced by the mechanisms signalling subsidiarity
(or proportionality) infringements – to the breaking point of the system’s
logic – stems from the collegiality requirement they set for national
parliament action. The legal effects of compliance checks as performed by
individual parliaments are in fact dependent on there being a quorum of
national parliaments. This necessary collegiality has echoes of a yet unmaterialised ‘third chamber’ (after the European Parliament and the
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 267
European Council of Ministers). And the quorum requirement in an area
where the political rate is extremely high, as mentioned earlier, is what
risks upsetting the Union’s unified institutional make-up.
The concern continues to apply even when the 1/3 of national
parliament votes quorum4 simply allows for a check resulting in a request
for review. This may apply to all draft legislative acts (proposed by the
Commission, the European Parliament, a group of member states, the
Court of Justice, the European Central Bank or the European Investment
Bank). The concern however takes on far more serious relevance when a
quorum equal to a majority of national parliaments can ultimately block
draft legislation, because of the ‘politically’ unstoppable trigger of a simple
majority of national parliaments deciding to oppose a draft5 under the
‘regular legislative procedure’ that is, the basic co-decision procedure
giving the Commission a monopoly over initiative and where the
‘European legislator’ is made up of the Council of Ministers and the
European Parliament.
If the Commission then upholds its draft, despite a contrary vote by a
majority of national parliaments, review of the project does get blocked, in
the case of a procedural – not substantive –vote of 55% of all members of
the Council of Ministers or a majority of expressed votes in the European
Parliament.
Requests for a ‘third Chamber’ made up of national parliamentary
delegations and designed to be a ‘subsidiarity Chamber” have been
recurrent in the ongoing controversy over the Union’s democratic deficit.
They have however run into strong doctrinal and practical objections, as
reflected in the following passage:
The setting up of a new institution representing national
parliaments would not increase the system’s democratic
legitimacy. On the contrary, it would risk reducing it. This
“chamber” would indeed be made up of national representatives
elected by the parliaments of individual Member States. It would
4 Currently at 54 votes: one third therefore equals 18 votes, that are brought down
to 13, i.e. one quarter if the topic is the area of freedom, security and justice.
5 In the current 54 vote configuration this majority would be equal to 28 votes,
corresponding to 14 member states: Protocol provisions make no mention of any
computation of the corresponding population.
268 | ANDREA MANZELLA
therefore not have a direct popular mandate, as does the European
Parliament, but some sort of “democratic legitimacy of second
degree”, as does the Council. This would therefore increase the
system’s complexity without any real counterpart. Conversely, it
would almost certainly engage in competition with the European
Parliament.6
On the basis of the legitimisation inferred from the new subsidiarity
monitoring mechanism, the ‘third Chamber’ might thus take on a ‘diffuse’
form, its variable geometry changing from time to time, with one quorum
for review requests, and another for procedural blockage. There actually is
a forum for the convergence into legal quorums of individual
parliamentary positions (a forum actually set up to encourage such
operation). This is the COSAC Secretariat, which despite strong resistance
on the part of successive Italian delegations in recent years (only initially
supported by European Parliament delegations) and the objective
limitations that have thus been brought to bear on both its numbers and its
functions, nevertheless is a sufficient forum for the bringing together (if not
the promotion) of the requisite quorums.7
6
See.Verola (2006, pp. 206-207).
See COSAC Rule of Procedure 11bis, in the latest version submitted to the Lisbon
Conference, 15-16 October 2007: “The COSAC Secretariat shall be composed of
officials from the Parliaments of the Presidential Troika, and a permanent member
who supports the Secretariat in its activities. The officials from the Parliaments of
the Presidential Troika shall be appointed by each of the relevant Parliaments for a
non-renewable period of eighteen months. The permanent member shall be
appointed by the COSAC Chairpersons on the proposal of the Presidential Troika.
He or she shall be an official of a national Parliament and shall remain in office for
two years with the possibility of one renewal. The COSAC Secretariat shall assist
the Presidency and the secretariat of the host Parliament in all its tasks. The
members of the COSAC Secretariat shall perform their duties under the political
responsibility of the COSAC Presidency and the Presidential Troika or according
to the decisions taken by COSAC meetings. The permanent member shall
coordinate the activities of the COSAC Secretariat under the direction of the
Parliament holding the Presidency. The cost for seconding the permanent member
of the Secretariat to Brussels and other necessary technical costs of the Secretariat
are jointly borne by Parliaments wishing to contribute.” (According to the report
submitted by the Working group on the co-funding of the permanent member of
the COSAC Secretariat, dated 11 September 2006, there is an agreement providing
7
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 269
In this context the issue of whether the mechanism “should be
activated by subsidiarity challenges to different points in the proposed act,
or whether a quorum is required on the same point” takes on considerable
significance8.
All things considered, subsidiarity checks cannot be equated with
point checks of draft legislation. Contrary to the proportionality principle,
which lends itself more readily to point assessments, the subsidiarity
principle – in this specific case focused on the appropriateness of the
proposed level of public decision-making – per se only implies a
comprehensive assessment of finalities. In both letter and spirit, provisions
relative to subsidiarity checks therefore rule out a blow-by-blow analysis of
the various provisions making up any draft legislation, unless the process
is geared to clarifying the goal pursued by the draft.
All in all, under subsidiarity checks, the assessment parameter – here
too exquisitely political – lies in the draft legislation justification rather than
in the rules contained in the draft per se. If anything, the rules serve as
counter-proof (to strengthen or weaken justifications, depending on
governments’ likes or dislikes...) for the actual goals pursued. But this is a
teleological element, to be used in the end to support the decision-maker’s
legitimate choice. Clearly, a goal-oriented assessment along these lines
therefore refers to the draft in its entirety, which rules out any point-bypoint analysis. And this provides an argument additional to the one put
before, regarding the practical usefulness of opening a channel for
observations relative to proportionality, so as to avoid their ‘emergence’ –
politically possible, however inappropriate – into the area of subsidiarity.
for the co-funding of COSAC administrative expenditure. This includes computers
and telecommunications, stationery... The European Parliament puts furnished
premises at COSAC’s disposal, free of charge. It has been agreed that the total
amount of cost contributions linked to the permanent member should not exceed
€80,000 a year).
8 The question appears in the following document: “Il progetto di mandato alla
Conferenza intergovernativa per la riforma dei Trattati europei”, Italian Senate,
Relations with the European Union Division, No. 59, 16 July 2007, p. 12.
270 | ANDREA MANZELLA
5.
Conclusions: Early warning for the early warning
In order to conclude this analysis very briefly, one could say that a breach
has clearly been opened with the subsidiarity monitoring mechanism,
which could allow neo-nationalistic positions to erupt both in the Union’s
values and in its multi-tier constitutional system. This system requires and
multiplies functional interferences with a consultative purpose, but would
however rule out any impingement on decision-making powers – whether
positive or negative – as laid out in the treaties.
The mechanism introduced is clearly influenced by public opinion
sentiment assigning to difficult Community-wide decisions – with obvious
factual misrepresentations – a whole set of political and social problems
that have almost always been due – in terms of severity – to causes external
to the Union. The preferred solution has been to address the lingering
democratic deficit issue not through more mature controls to be exercised
by national parliaments over governments and by the European Parliament
over the action of the Union as a whole, but rather through direct national
parliament activism with respect to community legislative procedures
In order to restore balance, governments will therefore have to
exercise ‘control’ over their parliaments, and if necessary, rein them in. This
shows how choosing the wrong tack to combat the so-called democratic
deficit can lead to a democratic paradox. If the Union’s institutional balance
is to be safeguarded, with a view to exorcising the peril of a fragmentation
of its decision-making processes by national parliaments – of all perils, this
is certainly the most severe.
References
Senato della Repubblica (Italian Senate) (2007), Il progetto di mandato alla
Conferenza intergovernativa per la riforma dei Trattati europei, Ufficio dei
rapporti con le istituzioni dell’Unione europea (Relations with the
European Union Division), No. 59, 16 July, p. 12.
Verola, N. (2006), L'Europa legittima, Florence: Passigli Editore.
15. THE SHAPE OF POST-LISBON EUROPE
GIAN LUIGI TOSATO
1.
The new Treaty’s structure
The Lisbon Treaty’s structure is the result of a compromise between
opponents and supporters of the previous Constitutional Treaty. Its
opponents gained the upper hand with regard to form and its supporters
with regard to content. Formally, what we have is a revision treaty, like
those of Amsterdam and Nice. It simply modifies existing treaties (the
Treaty on the European Union and the Treaty establishing the European
Community), without replacing them; it is, as its official description reads,
a ‘Reform Treaty’. In substance, the new treaty includes many of the
innovations of the Constitutional Treaty rejected by the French and Dutch
referenda. The nature and number of changes are such as to have a
profound effect on the existing treaties.
Form and substance do not mesh well in the new treaty in view of the
clear contrast between container and content. The container, a mere
amending instrument, seems unsuited to accommodate the content that has
been poured into it, in view of the scale and significance of the reforms. The
immediate consequence is that the new treaty is difficult to decipher. The
document produced is long and complex and requires a labourious
comparison between the new revision text and the old amended texts, and
between the latter and a text (the constitutional text) that has formally been
abandoned. The document’s meaning is all the more difficult to grasp as it
is supplemented by several additional protocols and declarations intended
to supplement, clarify and sometimes even depart from the text’s
provisions. Two significant examples are the goal of free and fair
competition, initially eliminated from the text, then salvaged in an
additional protocol; and the primacy of Union law over domestic law, also
removed initially and later slipped back in through a declaration, which
refers to consolidated Community case law in this area.
| 271
272 | GIAN LUIGI TOSATO
These aspects of the treaty have elicited an avalanche of criticism.
Initial commentators spoke of its labyrinthine nature, rife with crossreferences and legalisms: just the opposite of the calls contained in the Nice
and Laeken Declarations on the Future of Europe (in January and
December 2001). Simplification and transparency, two key words in these
documents, were to have been the guiding principles for the future
development of European integration. Instead, after a labourious gestation
of over six years, what has been delivered is a text that is neither simple nor
transparent and which is certainly difficult to understand for the European
citizens it was intended for.
It is hard to deny that this criticism has a point; the new treaty is
really obscure and tortuous. One should however not dwell only on these
more visible aspects of the new treaty. The criticism summarised above
only reflects a first level of analysis. Going beyond the revisional method
used and looking at the new Treaty not in itself, but rather from the point
of view of its impact on the existing treaties and the overall architecture of
the Union, a different picture emerges, which marks substantial progress in
the areas of simplification and re-organisation of the current system.
2.
A simplified and re-organised system
After Lisbon, two founding treaties still remain. But previously, each
related to a different entity (Union and Community), and a distinct legal
system (Union law and Community law), not to mention the three pillars
(two inside the Union and the third represented by the Community). Now,
despite there still being two treaties, we have a single entity (the Union),
with a single system and a single set of institutions, where the distinction
between pillars has been (almost) abolished. This marks the end of the
absurd dualism between Union and Community produced by the
Maastricht compromises, the elimination of which was long overdue.
This represents a significant simplification of the European
architecture. Of course the approach had already been included in the
Constitutional Treaty and thus to some extent can be considered as already
having been accepted. But it is a good thing for it to have been given
further and, one hopes, final endorsement. The Treaty of Lisbon introduces
another new ingredient in the re-organisation of the system, which goes
beyond the Constitutional Treaty and holds potential for promising future
developments.
THE SHAPE OF POST-LISBON EUROPE | 273
As just mentioned, despite the fact that there are still two founding
treaties, they now refer to a single entity. The primary rules of the Union
are thus distributed between two distinct texts: the Treaty on the Union
and the Treaty on the Functioning of the Union. And even though it is
pointed out that both have equal legal value, in fact they differ in terms of
content and formal legal regime.
The first treaty contains the principles and fundamental rules of the
Union; it establishes its goals, values, competences, institutional structure,
relations with member states and with European citizens and procedures
for amendment, accession and withdrawal. The second treaty lays down
the rules under which its various bodies will operate, the way in which the
domestic market is regulated as well as provisions governing the
implementation of common policies. The provisions of the second treaty
concerning policies and deliberative procedures are subject to a simplified
amendment procedure. The intergovernmental conference stage is bypassed and, in the case of deliberative procedures, internal ratifications are
considered as granted unless individual national parliaments formally
dissent. One could borrow a term used for the European Coal and Steel
Community (ECSC) to define this simplified procedure as ‘small revision’,
to distinguish it from regular and solemn amendments.1
Admittedly, the way provisions are distributed between the two texts
is not always consistent. Some of the provisions of the Treaty on the Union
should really have been placed in the other treaty, like the ‘specific’ rules
relating to common foreign and security policy. Greater simplification of
the ‘small revision’ procedure would have also been preferable. The
simplified procedure only applies to some of the provisions of the second
treaty, and yet it still requires approval on the part of all member states at
government and parliamentary level. Nevertheless, we find ourselves with
a major innovation. The Union’s primary rules are not only grouped into
separate documents, they are also distinguished by significant differences
of a substantive and formal nature.
Ever since its inception, the process of European construction
featured the intermingling within the same treaty of basic institutional
1 The ‘small revision’ expression has been used within the ECSC with reference to
the revision procedure set out in Article 95 of the Treaty. By means of a ‘small
revision’ an adjustment to the powers of the High Authority could be enacted.
274 | GIAN LUIGI TOSATO
elements together with rules applicable to specific sectors. This may have
been justifiable at the time of the ECSC, which dealt with a clearly defined
sector, but became increasingly pointless with the European Economic
Community (EEC) and the European Union and the progressive extension
of their competences.2 The Constitutional Treaty provided no remedy to
this problem, which now seems in the process of being solved.
We now have on the one hand a basic treaty, the Treaty on the Union,
the provisions of which establish its fundamental law; and on the other
hand an implementing treaty, a kind of ‘organic law’, the Treaty on the
Functioning of the Union. This gives rise to a two-tier system, with the
implementing treaty in a subordinate position to the basic treaty. In view of
their nature, the provisions of the basic treaty (fundamental law) require a
more stable consensus over time; they therefore should not be open to optouts on the part of individual members and it is reasonable that they
require a more stringent amendment procedure. On the other hand, the
provisions of the implementing treaty (organic law) are such as to require
more frequent adaptations, in line with changes in circumstances and
prevailing political positions; in this case, therefore, there appears to be a
rationale for a more flexible amendment and opt-out system.
It is hard to say whether the system described is intentional. The
concern addressed was likely of a different nature, connected to the
ratification process and the referendum risk. Emphasis was deliberately
laid on the discontinuity between the new treaty and the constitutional one,
the former an amending treaty, the latter a treaty replacing its predecessors.
As a result, two treaties remain, despite the fact that they refer to a single
entity. But what might appear to be an incongruity, ascribable to
happenstance rather than intention, ends up producing a positive
innovation. It brings about the re-organisation and simplification of the
system, basing it on two separate groups of primary rules.
It will now be easier for the two groups of rules, and their respective
treaties to evolve independently of each other. In particular, it will be
possible to amend the sectoral regulations of the Union without affecting
its institutional structure. This all leads to a double-positive effect –
2 Not surprisingly, the Laeken Declaration of 15 December 2001 indicated the
desirability of making a distinction between a basic treaty and other treaty
provisions.
THE SHAPE OF POST-LISBON EUROPE | 275
endowing the system with greater flexibility and opening new areas to
political debate. As has been rightly pointed out by Micossi (in this
volume), the policies of the Union have become normal policies, and
political divisions may now take shape around them, in line with
traditional left/right divisions. This will certainly contribute to
strengthening the Union’s democratic life (and thereby its legitimacy).
3.
The ‘constitutional’ issue
The new treaty eliminates any trace of constitutional names or signs. The
terms ‘constitution’, foreign ‘minister’, ‘law’, ‘framework law’ are all
banished; the symbols of the Union (flag, anthem, motto) are equally
discarded, as is any explicit reference to the primacy of Union law. This is
tantamount to a full-scale requiem for the European Constitution, almost a
kind of damnatio memoriae.
The countries that had rejected the Constitutional Treaty through
referendum or that in any case were opposed to the text have thus been
given the tangible sign they wanted of a break with the past. They can now
tell their publics that the new treaty is radically different from its
predecessor. On the other hand, countries that were in favour of the
Constitution had to accept this ‘sacrifice’, because otherwise no agreement
would have been achieved. But what is the real effect of deleting the
constitutional names and symbols? A clarification appears desirable.
The ‘constitution’ concept can be understood in a number of different
ways.3 Some believe it has a very specific and highly circumscribed
historical meaning; that its purpose is to identify the basic law of a political
community with features specific to modern State systems. Outside of this
context, it would be mistaken to use the term, as it would lose its distinctive
nature and give rise to misunderstandings. If that is so, there is obviously
no justification for using the term in a European context. As the Union is
not a State, its founding act cannot be a constitution. And the fact that the
term is used, as in the previous treaty, does nothing to change its nature: it
remains a treaty and not a constitution.
One can argue, however, that issues of modern constitutionalism also
apply to supranational political entities endowed with authority over
3
On this point see Cassese (2002) and Amato (2003).
276 | GIAN LUIGI TOSATO
member states and individuals. It would then be quite proper to recognise
the constitutional nature of those Union norms that govern fundamental
aspects of the Union (institutions, competences, procedures, guarantees,
etc.). Therefore the European Court of Justice made no mistake in its past
rulings (Les Verts judgement, 1986; SEE opinion, 1991) when it referred to
the Community Treaty as a constitutional charter; and it is equally not
mistaken to use the same term today with regard to the Treaty establishing
the Union, despite the deletion of all and any constitutional terminology.
So it all depends on which concept of constitution one takes as a
starting point. Clearly, its applicability to the Union is to be ruled out
assuming that there is an inseparable link between constitution and State.
This only means, however, that the Union is not a State-type entity; and not
that the Union can be equated with common international organisations,
regulated by international covenants. Conversely, under the other line of
reasoning, the founding act of the Union can be deemed to have a
constitutional character, but this does not mean assigning State identity to
the Union. The two issues – the nature of the Union and the definition of its
founding act – remain separate.
So far, we have examined the issues from a legal standpoint.
However, signs and symbols also carry political weight. And as the
adoption of constitutional terminology provided momentum for a closer
integration of the peoples of Europe, discarding it now moves in the
opposite direction. It signals a retreat back to national values and interests,
or at least a moment of uncertainty with regard to the outcome of the
process of European construction. That said, some symbols, such as the
Union’s flag, remain solidly in place, despite the attempt to dispatch them
with the stroke of a pen – a warning that reality is much stronger than any
attempt to force matters through regulations.
4.
Institutions and decision-making efficiency
In the area of institutions, we had become accustomed to the Community
trio or triangle: Parliament, Commission and Council. In the unified
structure of the Union we now also have the European Council, which did
actually already exist but without a clearly defined position. The trio has
been converted into a quartet and the triangle into a rectangle. At the lower
corners we find the European Parliament and the Council; at the upper
corners, the Commission and the European Council. On one of the two
vertical sides we find institutions with a supranational vocation – the
THE SHAPE OF POST-LISBON EUROPE | 277
European Parliament and the Commission; on the other, intergovernmental institutions – the two councils. Each institution interacts with
all the others; relations therefore develop not only along the sides of the
figure but also along its diagonals.
The new treaty also ushers in a new player, national parliaments. For
better or for worse (see Manzella, in this volume), the quartet thus evolves
into a quintet. Hard to say exactly where the newcomer should be placed.
Formally, this player is not one of the Union’s institutions, but it has
become a stable part of its legislative procedures and may exercise a
blocking influence on new legislation. It is also difficult to decide whether
to position national parliaments on the supranational or the intergovernmental axis. They contain a bit of both: as democratic bodies
representing the people, national parliaments appear to be comparable to
the European Parliament; at the same time they express national rather
than supranational interests. What is clear is that the institutional dynamics
of the Union now include a new player interacting with all the others.
The picture just outlined is a mere sketch; it would require a detailed
account of the tasks and duties of the various players. However, it
delineates a particularly complex institutional system. Certainly this could
be described in positive terms, as an increase in fora, scrutiny and
guarantees within the Union. But if the yardstick is decision-making
efficiency, the assessment may be somewhat different. What seems to be
emerging is a consensus-based system, more effective at stalling decisions
rather than facilitating them, and at encouraging deferral and (unavoidably
small-scale) compromise solutions, rather than ensuring promptness of
action and the prevalence of European interests. This is aggravated by the
voting procedures in the two councils. All European Council decisions
have to be unanimous and the same applies to major Council decisions.
Furthermore, defining a new system for calculating majorities within
Council is practically postponed until 2017, or even later because of the
reference to the ‘Ioannina’ approach.
Summing up, the Union’s decision-making procedures feature a
plurality of players and an unavoidable requirement for general consensus
among national governments, with all the implications this has in today’s
27-country Europe. Decisions are therefore likely to remain labourious and
uncertain in outcome and the problem of decision-making efficiency (so
central and vital for Europe) may remain unresolved even after the reform.
278 | GIAN LUIGI TOSATO
5.
Three candidates for the role of Mr (or Ms) Europe
The discussion over institutions calls for an appendix, of not negligible
importance. Who will be Mr (or Ms) Europe in the new Union structure?
There are a number of candidates for the part. The three frontrunners are
the President of the European Council, the High Representative for Foreign
Affairs and Security Policy and the President of the Commission. As a
matter of fact, one could also add the rotating President of the Council and
the President of the European Parliament. But the position of the President
of the Council is weakened because of the continuing half-yearly rotation.
As to the President of the European Parliament, although the Parliament is
certainly of increasing significance as a legislative and political body, it
can’t as yet compete with the traditional governing institutions of the
Union (Councils and Commission). Therefore the race can be narrowed
down to the three main contenders.
Each has both strong and weak points. The President of the European
Council is backed by the weight of the most authoritative government
institution, and will have the task of establishing the body’s agenda and
implementing it. However, s/he does not have autonomous decisionmaking powers. The President of the Commission can rely on the resources
and structures of a well-established institution, on its prerogatives over
foreign trade and a special relationship with the European Parliament. To
some extent, it is the recognised voice of economic and supranational
Europe. Major issues of foreign (and domestic) policy however remain the
province of national governments and consequently of the councils
representing them. As far as the High Representative is concerned, despite
the change in name, s/he basically inherits the role and functions assigned
to the minister for foreign affairs under the Constitutional Treaty. S/he will
therefore be responsible for conducting the Union’s foreign, security and
defence policy, taking advantage of his two hats as Vice-President of the
Commission and President of the Council on External Relations, combining
the functions of the two positions in his person. S/he will furthermore be
able to make use of a dedicated structure, the embryo of a European
diplomatic body. The position of the High Representative however appears
to some extent subordinate to those of the President of the Commission and
the President of the European Council.
In light of the above considerations, two scenarios are possible: either
that following a competition between the three figures, one prevails and
becomes the true Mr (or Ms) Europe; or else that positive cooperation is
THE SHAPE OF POST-LISBON EUROPE | 279
established between the three, so that Europe is represented by a troika
rather than a single individual. Also possible are dual solutions, in which
case the High Representative would hold the balance of power. It is
difficult to predict how this will play out. It will in part depend on the
personalities of the people chosen for the three positions and in part on the
balance between governmental and supranational institutions; more
importantly, the weight of facts and realities may well exercise a decisive
influence. One can only hope that the three figures will not hinder each
other in the pursuit of personal visibility and success and that a spirit of
cooperation will prevail. Until we have one person jointly holding the
presidency of the European Council and the Commission (something that
is not ruled out in the new Treaty),4 the aforementioned troika could, if
united and cohesive, provide a powerful engine for initiative and action.
The Union stands in great need of such a boost in authority in order to
overcome national resistance and take on a leading role on the world stage.
6.
The market: Between competition and general interest
Turning from institutions to the Union’s common policies, the list of open
issues grows. One example, in the economic area, relates to competition
policy.
Market and competition rules have characterised 50 years of
European integration, being its main driving force. But today competition
has been removed from the list of Union goals. These now include
sustainable development and balanced economic growth, more generally
the economic and social well-being of its citizens. Competition has been
downgraded to a mere instrument (together with others) in the pursuit of
such goals. The importance of this instrument is however reiterated in a
special protocol. One may thus wonder what the future role of competition
will be.
We need to understand whether the previous open and competitive
market approach will continue to prevail, as would seem to be required by
the protocol; or whether this is the beginning of a new season in the
relations between politics and the economy, between the market and the
4 Under the Lisbon Treaty the office of President of the European Council is
incompatible solely with a national office (see the new Article 15 of the Treaty on
the European Union).
280 | GIAN LUIGI TOSATO
public interest, as would seem to be suggested by the elimination of
competition from the goals of the Union. The Treaty of Lisbon gives
contradictory signals in this area and future developments are not easy to
predict. For the time being, we can but note the conflicting views of those
advocating greater flexibility in competition law implementation in order
to give greater scope to industrial policy goals and public concerns
(environment, consumers, employment) and those who fear the onset of a
new course featuring regulatory constraints that may hinder free market
dynamics.
The same question arises with respect to general interest services. The
current Community Treaty has two provisions concerning these services:
one has existed since the establishment of the Community (Article 86),
whereas the other derives from the Amsterdam amendment (Article 16).
The first establishes that enterprises providing public services must be fully
subject to market and competition rules, provided this does not hinder
their mission. Should this be the case, an exemption applies, which the
Commission and the Court long interpreted very restrictively. The second
provision, from the Amsterdam text, emphasises the importance of public
services and urges the Community and its member states to ensure they
operate adequately. Following the adoption of this provision, the
exemption has been interpreted less restrictively. With the new treaty, the
two provisions remain in force and a special protocol has been added
thereto, which recognises national authorities’ broad discretionary powers
in organising services of general interest.
How should the protocol be read? It states that its provisions are
purely interpretative, but in that case why insert them? This may be
deemed nothing more than a redundancy in the new treaty without any
concrete implications. Or it may be a signal akin to the elimination of
competition from the goals of the Union. In which case the special regime
for public services would be strengthened and such services would make
up a sort of ‘free zone’ set aside for state jurisdiction and to a large extent
unaffected by the constraints of EC competition rules.
7.
A foreign policy for the Union?
In foreign policy (and so we come to the heart of political Europe),
uncertainties and ambiguities prevail regarding the respective powers of
the Union and its member states. The treaty text appears to go in one
direction, and a declaration appended to the final act, in quite another.
THE SHAPE OF POST-LISBON EUROPE | 281
The treaty contains a number of significant innovations: the Union’s
international legal personality, the occasional resort to majority decision
and the creation of a figure entrusted with handling common foreign policy
as a whole. We have already referred to the latter. Whereas the
Constitutional Treaty spoke of a Minister for Foreign Affairs, the title is
now more modest: High Representative. Its terms of reference however
remain the same; they include submitting proposals to the Council on
Foreign Relations, presiding over it, implementing its decisions and
speaking on behalf of the Union before the United Nations. The High
Representative will be supported by an embryonic European diplomatic
service. All these measures are aimed at strengthening the ability of the
Union to develop its own foreign policy and speak abroad with a single
voice.
The appended declaration, however, contains a number of caveats in
defence of state prerogatives. According to the declaration, treaty
provisions do not affect the responsibilities and powers of individual
member states in shaping and handling their own foreign policy, do not
compromise their relations with other countries or international agencies,
do not hinder the tasks and roles of its diplomatic representations, do not
restrict the freedom of action of the holders of permanent seats on the
Security Council and do not confer any new Common Foreign and Security
Policy responsibilities on the Commission or the European Parliament.
The emerging picture is contradictory. Which should we give more
credence to: the treaty, which directs the Union to develop its own foreign
policy or the declaration, which makes this goal very difficult to achieve?
From a legal standpoint, declarations, unlike protocols, are not binding, but
they do carry political weight. In this case, there is a risk that the CFSP will
continue to be a separate pillar within the Union. A pillar that is rigorously
intergovernmental in nature requires the unanimous support of all member
states before any common initiative can be taken and leaves them freedom
of action to protect their national interests.
Hopefully the Union will succeed in asserting itself as a single entity
on the international stage. But uncertainties still exist and concerns are
justified. There is a danger that the Union will only be allowed to handle
minor issues, with high-profile foreign policy matters remaining the
absolute prerogative of member states (see Merlini in this volume).
282 | GIAN LUIGI TOSATO
8.
Two conflicting concepts
The examples of ambiguity and uncertainty described previously can
(almost) all be traced back to the two conflicting concepts that have marked
the process of European construction since the beginning: on the one hand
a political (and not just economic) entity, with federal connotations; on the
other, a confederal, intergovernmental institution mainly (though not
exclusively) entrusted with economic matters.
At times the first concept nearly prevailed: consider the Defence
Community in the 1950s, Spinelli’s parliamentary project in the 1980s and,
more recently, the Constitutional Treaty. But none of these initiatives
succeeded. On the other hand, the repeated attempts at giving Europe a
purely intergovernmental nature (the Luxembourg compromise, the
creation of the European Council, the second and third Maastricht pillars)
have also failed. Europe over time has maintained its ambiguity, setting it
apart from all existing models; it combines federal and confederal,
integration and cooperation, supranational and intergovernmental
elements.
Thanks to the many positive innovations introduced to the Nice texts,
the Lisbon Treaty certainly marks a new step on the way to “an ever closer
Union”. In this sense, Lisbon is in line with Maastricht, Amsterdam and
Nice. But as its predecessors also did, it leaves the Union’s finality unclear.
And pending the settlement of this basic issue, from which all others stem,
ambiguity and compromise will remain unavoidable, as clearly explained
by Giorgio Napolitano on 27 November 2007, in his Berlin lectio magistralis
(see Napolitano, 2007).
The reform process can therefore not be considered complete. It is no
coincidence that the European Parliament, while endorsing the new treaty,
immediately mentioned new amendment initiatives.5 More significant still
is the establishment of a group of wise men to reflect on the future of
Europe. A decision taken by the European Council, the very day the Treaty
of Lisbon was solemnly signed.6 According to the Heads of State and
Government, the wise men should not concern themselves with
institutional issues. But they can hardly address the major issues of the new
5
Resolution of the European Parliament of 11 July 2007, at point 21.
6
European Council of 14 December 2007, Presidency Conclusions, at points 8 to 13.
THE SHAPE OF POST-LISBON EUROPE | 283
century – sustainable development, the environment, energy, immigration,
combating terrorism and international crime – without reasoning in terms
of resources, structures and powers, in other words without considering
which instruments will be best suited to the implementation of the policies
required. Institutional issues appear unavoidable; and with them also the
need to “overcome the deadlock between conflicting concepts of the
European project” and “eliciting a new common political will”, as stressed
by President Napolitano in the lecture cited above.
9.
A look into the future
The contruction of Europe is thus not complete; but what tools will one
need to move ahead?
Over the last two decades we have seen a continuing process of
revision: the Single Act, followed by Maastricht, Amsterdam, Nice and
now, by Lisbon. A series of revision treaties that have marked the
successive stages of the integration process. The last stage proved
particularly lengthy and laborious, characterised by a resounding failure
(the rejection of the Constitutional Treaty) and the serious crisis that
ensued. One can thus easily predict that member countries will think twice
before embarking on a similar adventure again. Getting 27 members (or
even more, if there is further enlargement) to agree appears extremely
difficult; and, after all, the compromises and resources of diplomacy have
their limits. Europe has not reached its final destination, but its method for
solemnly revising the founding treaties may well have.
In the future, changes will more likely be made solely to the secondtier treaty, on the functioning of the Union. As mentioned earlier, such
revisions can be addressed through simplified procedures that bypass the
intergovernmental conference stage. But even the so-called ‘small revision’
will not have an easy time, as it requires the consent of all national
governments and parliaments (which was not the case with the ECSC).
Beyond formal revision procedures, instruments may over time be
perfected within the Union, through inter-institutional agreements or case
law. Inter-institutional agreements have in the past been used to introduce
quite significant innovations in legislative and budgetary procedures,
relations between institutions and the protection of basic rights. They may
be used again in the future. Although one should not underestimate the
fact that Council approval will be required, with the unanimous agreement
of governments this entails; and a further obstacle might stem from
284 | GIAN LUIGI TOSATO
national parliaments, following the recent Lisbon judgement of the German
Constitutional Court.
As for case law, it is superfluous to recall its driving force in the
integration process; and it is unthinkable that the evolving and creative
interpretation of European judges could be somehow blocked. The new
Treaty however establishes explicit barriers to the expansion of EU
competences via judicial decision: from the meticulous re-assertion of the
principle of conferral to the recurrent clarification that the legal personality
of the Union, the Charter of Fundamental Rights, support competences and
the residual competence under Article 308 in no way allow for new powers
to be conferred upon the Union. In fact, European judges themselves have
shown caution and restraint in recent times.
And then there is differentiated integration – already a fact within the
Union: consider Schengen, the euro or the defence policy. This
phenomenon has expanded in the new Treaty, as illustrated by the opt-outs
granted on issues of basic rights and in the area of justice and home affairs.
In any case, the key issue is clear to all and cannot be eluded. On the one
hand, some countries are not prepared to go for any further integration,
whereas on the other, matters requiring a European response are
increasingly pressing. It is therefore inevitable that if all do not feel ready,
initiatives will be taken by smaller groups, either through enhanced
cooperation within the Union (as in the euro approach), or through
agreements outside the Union legal system (the initial approach to
Schengen).7
Increasingly, differentiated integration appears to be an appropriate
way forward. The dissent of a few countries cannot be allowed to hold up
all the others. Europe therefore faces a future of unity and diversity, as
stated in the Constitutional Treaty. Admittedly, the two terms are difficult
to reconcile. The tasks and challenges ahead are therefore clear: Europe
must be allowed to move forward on a differentiated basis without
compromising its unitary construction and without losing sight of its
hopefully still common final goal.
7
On the euro model see Ciampi (2004).
THE SHAPE OF POST-LISBON EUROPE | 285
References
Amato, G. (2003), “Verso la Costituzione europea”, in Rivista italiana di
diritto pubblico comunitario, No. 2.
Cassese, S. (2002), La crisi dello Stato, Roma-Bari, Laterza.
Ciampi, C.A. (2004), Dall’Europa all’Euro dall’euro all’Europa, edited by F.
Galimberti, Roma, Treves Editore.
Napolitano, G. (2007), Sciogliere l’antico nodo di contrastanti visioni del progetto
europeo. Far emergere una nuova volontà politica comune, Lectio
Magistralis, Università Humboldt-Berlin, 27 November.
ABOUT THE AUTHORS
Stefano Micossi (co-editor), General Director of Assonime in Rome,
Professor of Economics at the College of Europe in Bruges and
Member of the Board of Directors of the Centre for European Policy
Studies in Brussels.
Gian Luigi Tosato (co-editor), Professor at University of Rome “La
Sapienza” and member of the Executive Committee of the Istituto
Affari Internazionali (IAI), Rome.
Carlo Bastasin, Columnist at Il Sole 24 ore.
Ginevra Bruzzone, Deputy Director General of Assonime in Rome.
Rocco A. Cangelosi, Director of the Office of Diplomatic Affairs of the
Italian Republic.
Sabino Cassese, Professor of Administrative Law at University of Rome
“La Sapienza” and Judge of Constitutional Court.
Mario P. Chiti, Professor of Administrative Law at University of Florence
and Chairman of the Italian Institute of Administrative Science.
Giacinto della Cananea, Professor of Administrative Law at the Faculty of
Political Science of University “Federico II” in Naples.
Maurizio Ferrera, Professor of Social Policy and Chairman of the Graduate
School in Social, Economic and Political Sciences at the State
University of Milan and Director of the Research Unit on European
Governance (URGE), Collegio Carlo Alberto di Moncalieri, Turin.
Fiorella Kostoris, Professor of Economics at the Department of Economics
of University of Rome “La Sapienza”.
Andrea Manzella, Director of Centro Studi Parlamentari at University
Luiss in Rome.
286 |
THE SHAPE OF POST-LISBON EUROPE | 287
Cesare Merlini, Deputy Executive Chairman of the Council for the United
States and Italy and President of the Board of Trustees of the Istituto
Affari Internazionali (IAI), Rome, of which he was previously
Director (from 1970 to 1978) and President (from 1979 to 2001).
Pier Carlo Padoan, Deputy Secretary-General of the OECD.
Alessandro Pansa, Joint Director-General of Finmeccanica and Professor at
Luiss University in Rome.
Luigi Prosperetti, Professor of Economic Policy at Faculty of Law,
Università degli Studi in Milan.
Stefano Sacchi, Assistant Professor of Political Science, University of Milan
and Acting Director, Unit on European Governance (URGE), Collegio
Carlo Alberto di Moncalieri, Turin.
Ferdinando Salleo, Secretary-General of Italian Ministry of Foreign Affairs
1994-1995 and Italian Ambassador in Moscow 1989-1993 and
Washington, 1995-2003.
Valeria Termini, Director of Scuola superiore della Pubblica
Amministrazione; Professor of Economic Policy; Chairman of the
Intergovernmental Committee for Energy and Environment of the
Presidency of Italian Council and Representative for Italy to the G8
and UNFCC on these issues.
IN THE 21ST CENTURY
PERSPECTIVES FROM THE LISBON TREATY
EDITED BY
STEFANO MICOSSI AND GIAN LUIGI TOSATO
INTRODUCTION BY
SABINO CASSESE
CENTRE FOR EUROPEAN POLICY STUDIES
BRUSSELS
The Centre for European Policy Studies (CEPS) is an independent policy
research institute based in Brussels. Its mission is to produce sound
analytical research leading to constructive solutions to the challenges facing
Europe today. CEPS Paperbacks present analysis and views by leading
experts on important questions in the arena of European public policy,
written in a style aimed at an informed but generalist readership.
The views expressed in this report are those of the authors writing in a
personal capacity and do not necessarily reflect those of CEPS or any other
institution with which they are associated.
Cover: Claude Monet, Impression, soleil levant, 1872
Musée Marmottan, Paris
ISBN 978-92-9079-929-0
© Copyright 2009, Centre for European Policy Studies.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system
or transmitted in any form or by any means – electronic, mechanical, photocopying, recording
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CONTENTS
Preface............................................................................................................................ i
1. Introduction: Im Zweifel für Europa
Sabino Cassese .......................................................................................................1
1. The European Union: Reasons for success ..................................................1
2. The crisis and its paradoxes...........................................................................2
3. A realistic agenda............................................................................................4
Part I. Economics and Consensus
2. Partisan Protectionism: Political Consensus, the Euro and Europe’s
Response to the Global Crisis
Carlo Bastasin .......................................................................................................7
1. A crisis in consensus.......................................................................................8
2. A crisis in politics ..........................................................................................13
3. The euro as trigger – two examples: Germany and Italy ........................16
4. Protection versus protectionism .................................................................19
5. Welfare ...........................................................................................................23
6. Beyond partisan protectionism ...................................................................28
References .............................................................................................................30
3. A More Social EU: Issues of where and how
Maurizio Ferrera & Stefano Sacchi...................................................................31
1. The need for a more social European Union.............................................31
2. How to build a more social EU ...................................................................34
3. Supplementing the internal market with social rights ............................36
4. Less rhetoric, more forward-looking initiatives .......................................43
References .............................................................................................................46
4. Economic Policy Coordination and Failures in Europe to counter
Recession
Fiorella Kostoris..................................................................................................48
Introduction..........................................................................................................48
1. When is coordination appropriate?............................................................49
2. Economic policy coordination under pressure .........................................52
3. A case study of the Stability and Growth Pace ........................................ 54
4. Effects of the financial crisis........................................................................ 61
5. Conclusions ................................................................................................... 62
References............................................................................................................. 65
Annex.................................................................................................................... 67
5. Market Integration and Competition Policy: The Challenges Ahead
Ginevra Bruzzone & Luigi Prosperetti ............................................................ 72
1.
2.
3.
4.
Introduction................................................................................................... 72
Becoming closer to citizens ......................................................................... 76
Stable principles and integration of structural policies........................... 80
The proper degree of harmonisation ......................................................... 81
4.1 Supranational regulation .................................................................. 81
4.2
Common rules for products ............................................................. 84
4.3
Commercial relations between business and consumers ............. 86
4.4
Common rules for services ............................................................... 86
4.5
...including network industries ........................................................ 87
5. Coordinated implementation ..................................................................... 90
6. Conclusions ................................................................................................... 95
References............................................................................................................. 96
6. Energy and European Institutions
Valeria Termini.................................................................................................... 98
1. Background ................................................................................................... 98
2. European Institutions: A necessary but insufficient precondition.
From Euratom to the Lisbon Treaties ........................................................ 99
3. European strategy and domestic policies: Goals, conflicts
and proposals.............................................................................................. 105
4. Europe’s relationship with the rest of the world: Energy security
and climate change..................................................................................... 111
5. Conclusions ................................................................................................. 116
References........................................................................................................... 118
Part II. The International Projection
7. Europe on the International Scene: A Union of necessity after a Union
of choice?
Cesare Merlini ....................................................................................................120
1. The international context ...........................................................................123
2. The Union’s Internal Context ....................................................................128
3. Suggested guidelines for a non-marginal common foreign policy......133
4. The instruments for the EU to achieve a high-profile foreign policy ..137
References ...........................................................................................................140
8. The Enlargement of the European Union
Rocco A. Cangelosi & Ferdinando Salleo ......................................................142
1. European enlargement and vision............................................................142
2. Recent admissions and new candidates ..................................................144
3. The Western Balkans ..................................................................................147
4. Turkey...........................................................................................................149
5. The borders of Europe................................................................................152
6. Europe’s identity.........................................................................................154
7. Enlargement in 2009 ...................................................................................157
8. After the Lisbon Treaty ..............................................................................159
References ...........................................................................................................161
9. European defence or defence of Europe?
Alessandro Pansa ..............................................................................................162
1. The institutions: A past of great hopes, a future with no illusions ......162
2. The industry: Oligopoly, foreign policy and internationalisation .......168
3. Europe: Cooperation, inefficiency and nationalism...............................172
4. Governments, institutions and investors: A changing role ..................175
5. Industrial structures, control systems and the equity market ..............177
References ...........................................................................................................181
10. Europe and Global Economic Governance after the Crisis
Pier Carlo Padoan .............................................................................................182
1. The breakdown of Bretton Woods II and beyond ..................................182
2. Keeping markets open in investment and trade.....................................186
3. Europe and the United States as ‘global regulators’? ............................188
4. Macroeconomic governance......................................................................192
5. Conclusions..................................................................................................197
References ...........................................................................................................198
Part III. The Institutional Framework
11. From a Community based on the Rule of Law to the European Union
as a Community of Rights
Mario P. Chiti.................................................................................................... 201
1.
2.
3.
4.
A community based on the rule of law ................................................... 201
Issues posited in the original 1957 EEC Treaty ...................................... 203
Developments subsequent to the 1992 EU Treaty ................................. 205
Roles played by the Council of Europe and the European Convention
on Human Rights ....................................................................................... 207
5. The 2007 Treaty and the recent Treaty of Lisbon................................... 208
6. The Constitutional Court in Italy and Europe’s international
obligations ................................................................................................... 209
7. Pending issues ............................................................................................ 211
8. Protecting rights – The EU’s basic remit ................................................. 211
References........................................................................................................... 212
12. Democracy in the European Union
Stefano Micossi ................................................................................................. 214
1. The need for democratic legitimisation................................................... 217
2. Control and democratic legitimisation mechanisms ............................. 221
2.1 Elections and referendums ............................................................. 222
2.2
The role of national parliaments .................................................... 223
2.3
Control and democratic legitimisation at the Union level ......... 225
2.4
Popular legitimisation and constitutionalism .............................. 228
3. Legitimisation through substantive Community action....................... 230
3.1 Opening new areas for decision-making in the Union’s
policies ............................................................................................... 231
4. Conclusions ................................................................................................. 232
References........................................................................................................... 233
13. Trail-Blazing Developments in Justice and Home Affairs
Giacinto della Cananea ................................................................................... 236
1.
2.
3.
4.
5.
The problem: Losing control over territory and individuals ............... 237
The European rescue of police powers?.................................................. 238
An area of freedom, security and justice................................................. 240
From the Laeken Declaration to the Lisbon Treaty ............................... 243
Issues of efficiency and safeguards.......................................................... 245
6. Future Prospects: ‘Choral’ cooperation and trail-blazing initiative.....249
7. Implications for checks and balances.......................................................251
8. Implications for the Union’s Foreign Policy............................................253
References ...........................................................................................................254
14. The Role of Parliaments in the Democratic Life of the Union
Andrea Manzella ...............................................................................................257
1. The democratic principles of the Union and national parliaments
within the European parliamentary system............................................257
2. The political nature of the subsidiarity and proportionality
principles......................................................................................................262
3. The irresistible political expansion of proportionality control .............264
4. The improper interaction of quorums......................................................266
5. Conclusions: Early warning for the early warning ................................270
References ...........................................................................................................270
15. The Shape of post-Lisbon Europe
Gian Luigi Tosato..............................................................................................271
1. The new Treaty’s structure ........................................................................271
2. A simplified and re-organised system .....................................................272
3. The ‘constitutional’ issue ...........................................................................275
4. Institutions and decision-making efficiency ...........................................276
5. Three candidates for the role of Mr (or Ms) Europe ..............................278
6. The market: Between competition and general interest ........................279
7. A foreign policy for the Union? ................................................................280
8. Two conflicting concepts ...........................................................................282
9. A look into the future .................................................................................283
References ...........................................................................................................285
About the Authors...................................................................................................286
PREFACE
E
ventually, after fifteen years of agonizing negotiations among the
member states and at times dogged resistance by segments of
European society, the European Union has reached a form of
constitutional settlement with the Treaty of Lisbon.
The new Treaty brings important changes to the European
construction, including a significant expansion of common policies decided
by the Community method, a stable President for the European Council, a
strengthened framework for external policies, more transparent and
effective decision-making and strict safeguards of subsidiarity.
Even in the wake of the new Treaty, however, the Union remains an
entity in flux, in search of its destiny. Further institutional progress is by no
means excluded, but it will have to be achieved explicitly rather than
brought about by stealth. The presence among the member states and in the
European Parliament of political forces staunchly opposed to further
deepening of the Union makes the prospect of increased use of enhanced
cooperation more likely.
Ultimately, the fate of the Union depends on its ability to respond to
the needs of its member states and its citizens in providing external and
internal security and economic prosperity in a global context of mounting
economic and political instability, where the centre of gravity of world
governance and strategic decisions is likely to continue to shift away from
Europe and towards the Pacific and emerging economies.
Against this background, the essays in this volume analyse changing
equilibria in common policies, institutional settings and legitimisation
mechanisms of the European Union, which are being brought about by the
new Treaty, and sketch out possible scenarios for the 21st century. The
essays are organised in three sections devoted in turn to economics and
consensus, international projection of the Union and the new institutional
framework.
|i
ii | PREFACE
The contributors to this collection are all members of EuropEos, a
multi-disciplinary group of jurists, economists, political scientists and
journalists who first came together in 2002 to contribute to the deliberations
of the European Convention and have developed into a permanent forum
for the discussion of European institutional issues.
The views expressed in the essays in this volume are not always
concordant, but they stem from a common commitment to the European
construction. The title of the introductory essay, Im zweifel für Europa, is
there for a reason.
Stefano Micossi and Gian Luigi Tosato
1. INTRODUCTION:
IM ZWEIFEL FÜR EUROPA
SABINO CASSESE
1.
The European Union: Reasons for success
The European Union represents the most successful establishment of a
supranational system of government since the large empires of the past (the
Holy Roman Empire or the Spanish, Ottoman, Habsburg and British
Empires).
But none of these multinational structures developed in such a short
space of time as the European Union, which in half a century has gone from
being an association of 6 to 27 country states, from an economic union to a
political union. And none of the structures that came before – unlike the
European Union – was the product of a voluntary and equal association of
nations, as opposed to a structure that coalesced around a dominant nation.
The Union has a third original feature as well. It unites states, but not
on the basis of their traditional functions – defence, public order, justice,
relations with foreign countries, budget – but on the basis of an element
that is potentially external to the state, namely the market. That said, the
European Union ends up exercising influence over traditional state
functions as well: thus, it may not dispose of large sums of money (in terms
of budget, it is dwarf-like), but it sets standards regarding states’ spending
power; it may not be responsible for public order, but it grants freedom of
movement to European citizens; it may have little influence in defence
matters, but it has guaranteed peace in Europe.
A fourth original feature of European construction is its support of
nation states that internal centrifugal forces (separatism, regionalism)
might otherwise fragment. National unity becomes necessary because of
the need for dialogue, the need to speak with one voice with other nations.
From this standpoint the traditional vision of a Union perpetually in
|1
2 | SABINO CASSESE
conflict with its member states is turned around, and another emerges, that
of a Union helping to strengthen national interests.
Fifthly, after barely half a century, the Union has become one of the
pillars of a multipolar world. Most of the 350 cases submitted to the World
Trade Organisation’s Dispute Settlement Body involve disputes between
the European Union and the United States. Conversely, in global fora,
worldwide agreements are often based on an understanding between the
United States and the European Union. The presence of the Union therefore
helps preserve global plurality.
Sixthly, despite its rapid pace, the Union’s development has been
very much in accordance with the 19th century ‘revolution in government’
mode, i.e. gradual: when a problem emerges, a solution is sought that is
then shown to be flawed and incomplete, requiring correction, etc. Or
solutions devised for one sector are transposed to another where they
generate effects that are in part unintended and require adjustment. All this
occurs in a self-feeding process, provoking angry tirades on the part of
those who see in it nothing but the progress of bureaucratisation. The
incorporation of successive compromises has built into Europe’s legal
system a rationale for slowness, but it has also encouraged a rationale for
the ‘essentiality’.
Finally the European Union crosses state barriers on a daily basis, in
its quest to induce domestic reform. Domestic reform stems from a
common European denominator (communications liberalisation, for
instance), wherein it finds inspiration, but it ends up producing different
outcomes, at a different pace. Hence the unstable balance between
uniformity and differentiation, European solutions and domestic outcomes,
the latter bearing the mark of local culture, style and institutions.
“Im Zweifel für Europa” (When in doubt, favour Europe) read the
headline of a German paper a few years back, summing up the strength
that has presided over Europe’s development and led to its becoming the
main point of reference for politics in Europe today.
2.
The crisis and its paradoxes
Despite the Union’s growing status as a world power and its increasing
activity (evidenced by the reams of regulations produced daily by its
numerous bodies), the standstill dealt by the Constitutional referenda held
in France and the Netherlands and in Ireland over the Treaty of Lisbon
induced a phase of apathy where the prevalent concerns focused on
INTRODUCTION: IM ZWEIFEL FÜR EUROPA | 3
fragmentation and the prospect of a 27-gear Europe (and thus, a loss of
collective momentum).
Yet even this critical phase is on various accounts paradoxical. There
are those who deplore the Union’s ineffectiveness not because it does too
much, but mainly because it does too little. It is argued that it should
intervene more pointedly in immigration, world trade, international
terrorism, the environment, energy. At stake are functions that states
cannot perform alone. Therefore, more Europe – as they say – is needed.
There are those who deplore the ineffectiveness of the Union’s
decision-making processes, ascribed to the facts that so many decisions
require unanimity, the Council President’s term is too short and Europe has
difficulty in speaking with one voice vis-à-vis the rest of the world.
European construction appears to be this machine ruled more by
procedures than by products. But the complexity of the decision-making
processes stems from the unavoidable compromises – as noted earlier –
that are needed to run the machine and are what makes it stand apart. A
driving force, not just a brake.
There are those who deplore the elitist character of the European
construction: it brings together politicians, bureaucrats, business leaders.
But in recent years citizens have been called to select who will represent
them in the European Parliament and the referenda have at the very least
involved many citizens in a European decision. So the Union is not an
overblown superstructure set up by the ruling classes. The people too have
a voice, and a direct one at that. And if the people feel fear and try to slow
the process down rather than speed it up, one should try and understand
why, rather than lament the collapse of the whole edifice. And in the
meantime, steps should be taken to broaden and strengthen the ‘elites’ on
which construction has long relied, trying out at the supranational level all
the induction and socialisation tools that have helped establish national
elites over the last two centuries.
There are those who deplore the re-emergence within the European
Union of national interests, forgetting that its whole construction is based
on reciprocal concessions, which have produced multiple benefits that no
one can deny today. If a state decides to evade European constraints on a
point that might damage its position, it must also be prepared to lose
advantages specially tailored to its needs. This interplay of reciprocal
favours is strengthened by the various ways in which costs and benefits are
assessed by each individual nation and within each nation as well (favours
4 | SABINO CASSESE
and the benefits bestowed are not uniform), not to mention the fact that all
supranational legal systems fragment national interests (one need but
consider the conflicting interests of the retail and the textile industry in the
face of expanding world trade).
Finally, there are those who deplore the fact that the Union has two
governments and that the Commission is not fully answerable to
Parliament. But this disregards the fact that in so doing, one is applying to
a new construct rules devised for the old (state legal and political) systems,
without first having investigated whether the new construct is not actually
generating new ways of making the executive accountable. In other words,
the dissatisfaction stems to a large extent from a defect in viewers’ vision.
All these ambiguities and paradoxes give rise to a tormenting doubt –
that the slogan Im Zweifel für Europa may no longer be appropriate.
3.
A realistic agenda
The ambiguity with which the failings of European construction (which are
in fact in part achievements, in part failings) are presented must not induce
inertia.
One may have to renounce the idea of a European Constitutional
Charter, but on the other hand there already is a European constitution. In
any event this does not mean that a number of improvements are not
required: in particular with respect to closer links between the Parliament
and the Commission, a stronger connection between the Commission and
the Council, a longer mandate for the Council President and a greater use
of majority (and qualified majority) voting.
If on the one hand the Union is called upon to take on new functions
and, on the other, it is still burdened with many other older ones, this does
not mean that it shouldn’t unburden itself through devolution to states,
and mainly to sub-national authorities, while retaining powers of control.
If the composite power and joint committee system strengthens the
Union but slows down its procedures, the decision-making process should
be redesigned not to make it less collegial, but to make it speedier.
If elites and the general public enter into conflict, this conflict has to
be changed into productive competition, into a balanced system of checks
and balances. That may produce, in other words, more guarantees, not
more conflicts.
INTRODUCTION: IM ZWEIFEL FÜR EUROPA | 5
And finally if national interests do fragment, steps should be taken to
encourage their multinational re-aggregation, which is good for Europe
(provided that it is not understood as a monolith, but as a network).
In other words, optimism should not lead to inertia. The strength of
European construction also lies in the fact that it has never stopped during
its first half century.
PART I
ECONOMICS AND CONSENSUS
2. PARTISAN PROTECTIONISM: POLITICAL
CONSENSUS, THE EURO AND EUROPE’S
RESPONSE TO THE GLOBAL CRISIS
CARLO BASTASIN
F
ar from providing an opportunity for better coordination, the global
financial crisis has accentuated national differences among the
member states of the EU. Although in line with the principles
enunciated in the European Economic Recovery Plan, EU member states’
responses to the crisis have shown a low degree of coordination. The
impact of fiscal stimuli has not been coordinated even in the component of
the fiscal packages (one-quarter of the total, according to the European
Commission) carrying direct spill-over effects. In some cases, the amount of
stimulus has been kept at a low level in order to ‘free-ride’ other countries’
packages. Public money has been spent with an eye to support mainly local
domestic activities, even at the cost of lower fiscal multipliers. Non-export
industries, especially infrastructure, even though less affected by the crisis,
have been supported by governments, thereby increasing demand for nonelastic production that could more easily adjust through higher prices than
higher quantities, and actually resulting in a negative welfare effect.
Requests for banking transparency – and supervision – have caused
uneasiness among national regulators and policy-makers. Banking
opaqueness has been protected by national governments. There has not
been an agreement on stress-testing, recapitalisation or restructuring of the
financial system. The threat is still lingering that countries with problematic
banking systems, little room for fiscal manoeuvre and low growth
(Belgium, Ireland, Austria, Greece and the United Kingdom) will face
increasing difficulty to manage their financial weakness and become
destabilising for the whole EU. First-best solutions – fiscal cooperation or
common financing instruments (Eurobonds) – remain unheeded as they
typically require strong political commitment. This is inducing defensive
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8 | CARLO BASTASIN
attitudes by the banks themselves, resulting in less credit to the economy
and less growth.
Exiting the crisis might prove a bigger challenge for the EU than the
crisis itself. The area is divided between fast countries and slow countries.
There is a risk that the growth divergence will reinforce these trends.
Countries that grow faster can reduce public debt more easily, benefiting
from less crowding-out and lower risk premia. Their banking systems can
finance innovation instead of simply struggling to reduce losses.
If the implementation of short-term policies is disappointing, the
long-term consequences of a lack of coordination are outright worrying.
Countries without fiscal room of manoeuvre and with critical banking
situations will need to be supported by countries with larger room of fiscal
manoeuvre. Countries risking public-debt failure will also need support.
Without macroeconomic coordination, current account imbalances, in an
environment of low growth, will jeopardise public debt sustainability. All
of this might trigger a chain effect from the weakest to the strongest links of
the European Union.
Why is Europe drifting towards self-defeating non-cooperation?
The answer lies in the objectives of national governments. The system
of national partisan politics in Europe defines itself in terms of its
protective or, alternatively, protectionist stance with respect to
globalisation. National consensus builds both on closure and openness.
More precisely, it works on the basis of a principle one might call ‘partisan
protectionism’: the protection of the constituency – labour for the left wing
and capital for the right wing, identified with partisan ideologies of the
past two centuries – while vigorously exposing the other constituency to
the full duress and dynamics of global competition.
This duplicity – far from weakening it – is strengthening the grip of
national ideologies on the imagination of the citizens of each European
country. Traditional – national – politics become a structural hurdle with
respect to coordination. The euro, for its many merits, has been the catalyst
of the contradiction between an open economy and closed politics. Now,
lacking an open European politics, the siren song of national protectionism,
carrying us away from European cooperation, sounds irresistible.
1.
A crisis in consensus
During the early decades, the European integration process elicited broad
consensus as reflected in public opinion of the various member states.
PARTISAN PROTECTIONISM | 9
Historical, political and cultural reasons had fed into a generally positive
attitude towards the early integration initiatives and their rhetoric.
Somewhat simplistically, this has been referred to as a ‘permissive
consensus’, i.e. a consensus not preconditioned by the concrete political
goals set forth in the European project, but rather by benign and not
necessarily informed support for the long-term ideals evoked.
Prior to 1973, no statistical data were available on public opinion
attitudes – a gap since filled by the Eurobarometer surveys, which have
made it possible to demonstrate statistically that a significant change in
public attitudes vis-à-vis the European Union has indeed occurred. The
1990s are the traumatic epicentre of this change. More specifically, up until
1991, explicit consensus among European citizens continued to rise, with
the Single Market project marking the highest point in terms of positive
answers to two standard questions: Are you for or against the efforts currently
being made to unify Europe? and Do you feel that in general terms your country’s
membership in the European Union is a good or a bad thing? In 1991, 82% of all
Europeans replied in the positive to the first question, and 72% to the
second as well. A few years later, around 1997, positive answers to both
these questions had dropped by 15 to 17 percentage points.
Public opposition to the European project emerged for the first time
in a number of different countries during the critical years between 1991
and 1997: the Maastricht referendum failed in Denmark and Ireland and
quite surprisingly, only passed with the slimmest of margins in France.
Opposition to monetary union mounted in Germany, eroding the
customary pro-integration majority (so much so that until 1998, two-thirds
of all German respondents stated that they opposed the euro) with the
support of the Karlsruhe Constitutional Court, and anti-Europe
parliamentary votes in the UK garnered much attention and broad public
opinion support, expressed via idiosyncratic anti-European media
coverage. New localist political groupings in Italy, Austria, the Netherlands
and Scandinavia began to gain ground through anti-European and at times
outright xenophobic programmes, with some obtaining government
positions by the year 2000. As of the 1990s, dwindling support for Europe
had become an unavoidable issue.
But what exactly do we mean by ‘consensus’? Strictly speaking,
consensus is a positive response to a question, a second-tier request
following that which led to the emergence of whatever is the object of the
consensus. This is why British observers in particular have so often stressed
10 | CARLO BASTASIN
the European Union’s ability to deliver rather than to deliberate. There are
many cases where joint achievements elicit consensus only after they have
materialised: there are thus far fewer Germans opposed to the euro today
than in 1998, as in this case European policy implementation has elicited
consensus through its output. And the scope of this extra-democratic
process subsequently extended even further, leading observers to speak of
output-based ‘legitimisation’.
But for various reasons, the process does not always work. In a
number of cases, the ability of the European Union to deliver has not been
appreciated by its citizens. Costs have remained more visible than benefits,
and an inter-temporal balance between costs and benefits has not slotted
into the rhetoric of politics. More specifically, according to some observers,
the shift from negative to positive integration (ranging from the removal of
obstacles to integration, a symbolic high point of which was the
establishment of the Single Market, to projects establishing as European
prerogatives that had hitherto been domestic, through institution-building
and handouts of sovereignty) has made ‘preventive consensus’ harder to
obtain. Telling Europeans “just wait and see, you’ll love the outcome” is
simply not enough when the process implies highly complex cost and
benefit offsets within countries, among countries and, indeed, over time.
This is particularly true when the stakes involve decision-making
processes, the outer limits of which cannot be foreseen – no more than their
end-points and thereby the full extent of their consequences: such decisionmaking processes, insofar as they are not devised for a single and specific
project, tend to involve delegations of political sovereignty that are both
broad and vague.
And thus the issue of consensus has become overlaid with that of
Europe’s democratic deficit, i.e. the lack of popular involvement and
control that is notoriously the mark of decision-making processes within
European institutions. Public opinion detachment has been linked to the
issue of remove between citizens and European decisions. According to this
interpretation, a dwindling consensus on things European corresponds to a
demand for more democracy on the part of public opinion – handling this
demand properly, through the appropriate institutions, would be the only
way to grant legitimacy to European decisions.
Sounds convincing. But it isn’t. Had this really been the case, had the
low level of citizen support stemmed from citizens’ frustration with their
modest involvement in democratic decision-making processes, with the
PARTISAN PROTECTIONISM | 11
limited openings granted them to exercise control and demand
accountability, why did the ratification process of the Constitutional Treaty
fail when submitted to a popular vote in both France and the Netherlands
and that of the Treaty of Lisbon more recently in Ireland? Both documents
provided for more democratic decision-making, and one would have
expected that European citizens would have been very approving of a
fairly ambitious attempt at containing Europe’s democratic deficit.
In other words, either the constitutional draft was actually not
ambitious enough, or clearly the overlay of consensus and democratic
deficit-based explanations doesn’t do the trick. As shown – in the negative
– by the drop in voter turnout in elections to the European Parliament, for
an institutional and political organisation to elicit broader popular
consensus, institutional forms or structures are just not enough. Channels
through which consensus can mature – typically within a domestic context
– must find an effective way of entering into dialogue with channels used
for European deliberations. And for this to happen domestic policies must
absolutely be consistent with European policies. Therefore the channels
linking domestic public opinion to government-level policy decisions and
European policy need to be watched closely, and no sweeping conclusions
drawn.
A number of generic explanations have been put forth that aim to
describe the consensus hiatus, which appeared between 1991 and 1997. A
non-comprehensive list would include, indicatively, the following standard
motivations: the relinquishing of too much sovereignty, Brussels’ low
legitimacy, less advantageous trade-offs between political autonomy, social
identity and economic benefits, the rise of localist movements in the face of
globalisation and the crisis experienced by ideological families in the wake
of the collapse of communism. All of these are plausible explanations. But
taken separately, or in the absence of a broader model that would lend
them consistency, they do not shed much light on the dilemma. In
practically all cases, they even appear to contradict one another: the
relinquishing of sovereignty was perhaps somewhat excessive, and yet
surveys show that citizens would be willing to accept even more in specific
fields such as foreign or security policy; Brussels does not appear to have
much legitimacy, but the citizens of some countries refuse to accept deeper
or more democratic political institutions; localist movements are now
waning in most countries; the ideological crisis has not benefited the
European Commission, a model non-partisan institution. All these
12 | CARLO BASTASIN
explanations of the 1992-97 crisis, therefore, appear to be impressionistic in
nature, and therefore are unsuitable for further analysis.
The point I wish to make here is that the crisis in consensus primarily
concerns domestic politics. And that in particular it has to do with the
quality of public discourse, which to this day is still dominated by 20th
century ideological categories in its upholding of the left/right divide as a
leading, polarising criterion. Crossing this left/right opposition with
another highly significant polarisation – that between closure to the outside
world and openness – allows for descriptions of national politics in a
context that highlights the global opening of European economies.
To the opening of societies and economies, domestic politics both left
and right have responded according to a criterion that I call ‘partisan
protectionism’, which in other words protects nothing but their basic
constituencies in accordance with the ideological habits of the 20th century
(with the right wing endorsing capital, and the left, labour) and opens up
(i.e. exposes to global competition or to European integration) the rest of
society, i.e. the political opposition’s constituency. Against this backdrop –
and it is no accident that the crisis in consensus should have occurred
precisely between 1991 and 1998 – the euro proved to be the factor that
revealed the inconsistencies of politics inspired by partisan protectionism.
Because the euro did render inconsistent domestic policies anchored in the
ideological rhetoric of the 20th century and, absent a response, a political
vision consistent with openness, it eroded citizens’ general trust in politics.
Partisan protectionism, in its defensive side, has been evident even in
the public responses to the crisis. French right-wing government has
supported businesses twice as much as jobs. British left-wing government
has supported households three times more than firms. Germany’s Grand
Coalition has distributed public monies almost evenly between households
(55%) and firms (45%). Once taken account of fiscal effects, the Italian rightwing government has supported firms more than jobs, and the Spanish leftwing government has protected jobs more than firms (excluding the hardhit real estate and banking sectors).1
As long as partisan constituency protectionism continues to inspire
national policies in their day-to-day grammar, European principles of
openness and shared government will not find favour at the domestic level.
1
See European Commission (2009).
PARTISAN PROTECTIONISM | 13
On the contrary, their hostility to citizens’ interests will be underscored.
Demands for constituency-based political innovation will rise, in particular
with the challenge of aging and managing healthcare systems, and this will
call into question the universal rights that are at the very root of European
feelings of equality and social identity that generated forms of ‘social
patriotism’ in Europe after the war, when any other national feelings
seemed unacceptable. In the absence of a political vision that can tackle not
so much the opposition between state and market, but rather their
cooperation, there will be no developing of either ‘open’ policies (unlinked
to national borders) or efficient public responses. To sum up: protectionist
and populist behaviour on the part of national political establishments –
driven by the cultural legacies that have precluded coming to terms with
the openness of global society – has eroded the pro-European consensus
and may jeopardise the ultimate survival of the very project.
2.
A crisis in politics
Even when European public opinion was at its most detached vis-à-vis the
European Union and its plans for the future, Eurobarometer surveys
continued to indicate that the crisis in consensus concerned domestic
politics and institutions just as much as it did their European equivalents.
The surveys showed that European citizens ascribed to their national
governments and parliaments both more reliability, in terms of defending
their interests (protection function) and more unreliability with
discrimination being a risk: quite what one would expect when
constituency protectionism prevails, as it posits that national governments
do represent protection, but only for part of the country’s voters.
Regarding national institutions, governments and parliaments,
citizens expressing distrust have always outnumbered those expressing
trust, whereas the opposite prevails when the same questions are asked
with respect to the European Commission and Parliament. The greater
degree of distrust shown for national institutions as compared to their
European equivalents is self-evident and well known among various
observers of all things European. Vivien Schmidt (2006) thus observes:
“The institutional reforms envisioned in the Treaty could indeed have gone
some way toward reducing the perceived problems of EU democracy. But
they would not in any case have solved the real problem of democracy in
the EU: the democratic deficit at national level.” She considers that
‘Europeanisation’ has taken meaning away from domestic politics and
14 | CARLO BASTASIN
further points out, incisively, that a “policy without politics” system has
emerged at the European level while a “politics without policies” system
prevails nationally. This, she feels, has led to disaffected voters and
political extremism in member states. As the Constitutional Treaty aimed
precisely to reconnect at least in part politics and policies, the ratification
process failure may show that resistance to the idea of reconciling public
opinion with European politics lies precisely at the political level and
therefore at the level at which, domestically, public opinion is formed.
It is very often posited that in societies as complex as ours, citizens’
political choices no longer correspond to simple left-right divides. In actual
fact, ever since the 1950s, these categories have been viewed as
decreasingly relevant. Nevertheless these two flexible and dialectic poles
continue to inform the traditional choices that determine incentives and
punishment for national governments. Citizens quite deliberately use
constituency politics categories when bestowing or removing their consent
where it matters most, i.e. in domestic political competitions.
And in actual fact, focusing on leading European Union democracies
in the 1990s and the early years of the current decade, the passé concepts of
right and left do provide us with a powerful key to understand
constituency-protectionist politics and its consequences. In France,
Germany, Italy and other countries as well, economic policies have
highlighted the differences in stances taken by right- and left-wing
governments. To simplify matters to a fault, the former have privileged
labour market liberalisation while protecting the ownership of capital, and
the latter have privileged financial market liberalisation while protecting
labour markets. In simple terms, this is partisan protectionism.
In the years just after the fall of the Berlin Wall, the right- and leftwing continued to identify with capital and labour, i.e. the conventional
socio-economic categories of ideological face-off politics. French
privatisations were thus launched by Balladur’s conservative government,
which upheld golden share control by entrepreneurs with the right
personal and political connections, while Jospin’s socialist government
went on to privatise capital through a stock exchange reform that impacted
corporate governance and stressed the need for transparency in asset
ownership. Similarly, in Germany, Helmut Kohl’s conservative
government launched a financial market reform, but protective networks,
the real hallmark of German relational capitalism, were dismantled by
Gerhard Schroeder’s socialist government. The same occurred in Italy, with
PARTISAN PROTECTIONISM | 15
a left-wing government privatising and overhauling the tenets of corporate
governance while the right-wing government that took over from it put an
end to privatisations and market liberalisation, increasing the protective
opaqueness of proprietary asset markets by passing legislation that
favoured false accounting. The converse occurred regarding labour market
reform: left-wing governments strengthened, in relative terms, labour
protection and trade unions’ protective role while right-wing governments,
on the whole, attempted labour market liberalisation. In France, for
instance, the 35-hour work week legislation adopted by left-wing
governments has been eroded by right-wing governments introducing
flexibility in starter job contracts and more recently still, in tax regimes
applicable to overtime, not to mention limitations on trade union rights to
strike in public services (also known as the ‘service minimum’); in Italy,
following the Treu reforms adopted by a left-wing government, the socalled ‘Biagi legislation’ proved to be a battle-horse for the centre-right
government and its amendment or repeal is the focus of conflict, within the
left-wing, between reformists and radicals. In Germany, labour market
reform was initially planned, albeit somewhat reluctantly, by the Kohl
government, but it had to wait six years and a 60% increase in the
unemployment rate to actually wend its way onto the political agenda of
the centre-left. Currently France’s President Nicolas Sarkozy implemented
explicitly right-wing protectionist policies: liberalising labour markets
while protecting capital and national champions, and going so far as to depenalise corporate crime. Consistently, Sarkozy is opposed to granting
European antitrust policies constitutional status, wishes to limit ECB
autonomy and temper common trade policy. Looking into individual
economic policy measures clearly yields a more subtle picture, but partisan
protectionism remains fairly prevalent in the rhetoric of both right- and
left-wing European politics: the left tends to protect labour and open up
corporate equity and capital markets, while the right tends to do the
opposite.
With the opening of national borders to the global economy, national
governments soon realised that opting for isolation vis-à-vis the rest of the
world, and closing up borders, was impossible or in any event,
counterproductive. The sophisticated response has been to protect on a
priority basis only those segments of the economy in which vested
constituency-based interests lie, while opening up the rest of the economy
to the pressures of globalisation and making them bear the brunt of the
adjustment. In so doing, both the right and the left have ended up referring
16 | CARLO BASTASIN
back to traditional 20th century categories: capital for the right, labour for
the left.
Partisan protectionism is at the root of a whole set of political
paradoxes that have generated distrust of politics. By engaging in
constituency protectionism, left-wing politics thus obtains right-wing
results (insofar as exposing capital to competition increases its relative
productivity as compared to that of labour) and vice versa; strengthens
ideological confrontation (to the extent that only one voting constituency is
made to bear the brunt of adjustment, political confrontation is
exacerbated); challenges the credibility of politics (with one production
factor flexible and the other rigid, the economy is bound to operate suboptimally); strengthens the rhetoric of isolation (as adjustment to the outer
world is entirely made to weigh on one part of society); favours nonpolitical solutions (with the politically disfavoured production factor going
for either the ‘black’ economy or tax evasion) or solutions that are not
constituency-based (centrist or broad coalition governments that aim for
protection rather than for openness); all of which encourages the rhetoric of
isolation or of ‘domestic’ (in actual fact, constituency-based) interest
protection, whereas policies could be embraced that aim to open up the
economy.
Clearly, constituency-based protectionism stands opposed to the
policies of openness that mark European integration and can therefore only
make further inroads as support for Europe flags.
3.
The euro as trigger – two examples: Germany and Italy
It is no accident that constituency protectionism emerged in the 1990s and
more specifically between 1991 and 1998, as ideological confrontation
rhetoric and trust in politics were then made inconsistent by the advent of
the euro.
Prior to the liberalisation of capital flows, political comparisons in
terms of income distribution were not really telling. Up until the early
1980s, small to medium economies with their own currencies, operating
under limited capital flow regimes (‘closed economies’ for the sake of
keeping things simple) could singly determine economic policies favouring
either capital (in line with preferences voiced by right-wing voters) or
labour (in the case of left-wing governments), knowing that the benefits
directly deriving from such political decisions would be redistributed
within national borders. Under a very simplistic closed economy model,
PARTISAN PROTECTIONISM | 17
right-wing policies would probably primarily benefit capitalists’ profits,
inter alia through lower capital taxation. But favouring return on
investment also implies increasing the supply of investment, which in a
closed economy in turn generates an increase in labour demand and,
assuming production factor immobility, a subsequent increase in wage
levels and increased income including for those who are not capitalists.
Left-wing governments would probably adopt a different tack, supporting
employment or wage levels, stimulating demand for consumer goods
through increased household incentives, thereby laying the ground for
increased yields on corporate productive investment. Setting aside for the
moment business cycle issues, and thus remaining in a static medium-term
world – a radical assumption that is nevertheless realistic in politicians’
timelines – as well as the vigorous rhetoric of ideological confrontation, in
terms of both income redistribution effects and the boost to growth, left- or
right-wing policies would thus most likely be quite similar (ruling out
radically anti-capitalist or anti-democratic policies). And should we assume
– more realistically – a dynamic equilibrium in a quasi-closed economy, i.e.
the typical position of European countries in the 1970s, conclusions would
hardly differ. Poor resource allocation among domestic production factors
would lead to balance of payments imbalances, which could in turn be
remedied through monetary or exchange rate policies.
The economy’s quasi-indifference to constituency-based policies has
been acknowledged by analysts focusing on country performance as
viewed via ‘domestic models’ centred on labour market institutions, rather
than via policies specifically determined by the requirements of given
political constituencies. This quasi-indifference assumption is a radical
critique of conventional political analysis, which considers the rhetoric of
right- and left-wing dialectics as an a priori significant interpretative key,
because of values-related differences. In the real world, however, a quasiindifference context presents parties with prime ‘moral hazard’ conditions,
through which they can exercise radical dialectics as well as indulge in
ideological proselytism, without in the end having to fear the consequences
of their own economic policies, the potential inefficiencies of which can, if
necessary, be offset through exchange rate-mediated balance of payments
adjustments.
In this framework, monetary policy instruments clearly play a central
role. Nearly all payments imbalances generated by poor, politically-biased,
capital-to-labour resource allocation can be offset through exchange rate
18 | CARLO BASTASIN
changes. And in some countries, exchange rate policies did indeed become
the cornerstones of public policy.
Two countries – Italy and Germany – are emblematic of this centrality
of exchange rate policies in the 1970s and 1980s, despite radical differences
in their respective monetary philosophies.
Italy’s recurrent devaluations helped the country rebuild a
competitive edge eroded by constituency-based agreements – whether
capital subsidisation or labour protection – entered into by governments
and social partners primarily to defuse domestic social conflict and
manufacture artificial political consent.
Germany, conversely, acknowledged that its central bank – the
Bundesbank – was a fully independent monetary authority. While formally
keeping a distance from the political fray, the Bundesbank in actual fact did
interfere directly in capital-labour relationships. The German central bank
was indeed ready to pre-empt all trade union wage hike claims that might
have proved excessive in the light of its very restrictive inflation targeting
through interest rate increases feeding into exchange rate appreciation,
money supply decline and thereby a drop – in relative terms – in the
demand for labour. The central bank played a crucial political role – rightly
so from the point of view of Ordnungspolitik, to use the Freiburg definition –
each and every time the balance of income distribution between wages and
profits tended to generate inflation, or a balance of payments deficit. The
very attractiveness of the D-mark as an investment currency helped keep
investment flows within Germany’s borders (in a financially effective form
of ‘competitive revaluation’, as opposed to trade-effective ‘competitive
devaluations’).
Both Italy and Germany’s institutional set-ups, with central banks
operating under different mandates, provided political groupings with the
opportunity to engage in hard-edged rhetorical confrontation, without ever
really going for conflict: whenever conflicts between capital and labour
would generate inefficient economic policy ‘fits’, and therefore current
account imbalances, the exchange rate would appreciate or depreciate,
resetting the system to the same initial conditions for political confrontation
on income distribution. The vibrant rhetoric of political and social conflict
was therefore to a large extent all talk. In the years that preceded capital
flow liberalisation, ideological confrontation may have appeared to raise
life and death issues – in practice it was largely neutralised by foreign
exchange policy.
PARTISAN PROTECTIONISM | 19
With the adoption of the euro, exchange rate policies ceased to be an
option. Biased decisions in terms of income allocation to capital or labour,
generating payments imbalances, are no longer inevitably offset through
currency management in the framework of a closed economy. On the
contrary, in open economies with no control over exchange rates, worse
case scenarios – where a given government adopts the wrong economic
policies – lead to forms of factor mobility that penalise the least mobile
factor, generally labour; best case scenarios – where political decisions are
cogent with the development of an open economy – lead to situations
where the relative advantage enjoyed by one production factor does not
necessarily generate medium-term adjustment in favour also of the other.
In an open economy, political decisions that favour one factor have more
durable and imbalanced an impact than would be the case in a closed
economy.
We tend to assume that we live in a post-ideological world, and that
we are therefore sheltered from political conflict, whereas the conflicts
implicit in right and left-wing policy decisions (both on the supply and the
demand side) are far more loaded in terms of sustained consequences on
equity today than was the case in the age of ideological confrontation.
Protecting the interests of voter constituencies has taken on a much more
concrete meaning, and has become more effective from the point of view of
both distribution and advocacy for constituency-based policies. In other
words, the adoption of the euro did mark the blossoming of partisan
protectionism into an attractive electoral strategy for national politics,
while it proved negative in terms of consent and support for Europe,
insofar as it opposed the protective effectiveness of domestic policies to the
claims to openness voiced by Europe.
4.
Protection versus protectionism
We have just described the process by which the link between the euro and
national political strategies gave rise both to constituency protectionism
and a drop in support for the European Union (obviously, not only did
those countries that joined the eurozone renounce autonomous monetary
policy, but all of them did). Synchronicity with the crisis in support
revealed by surveys is self-evident.
But can’t constituency-based policies ever have protective features?
This is a legitimate question that nevertheless requires moving away from
the ‘closed society’ paradigm. In an open world where economic structures
20 | CARLO BASTASIN
are highly dynamic and changing, upholding the interests of a given
constituency does not necessarily correspond to specific allocative or
distributive policies regarding production factors. Political splits are more
often reflected in differing formulas and weights regarding equal
opportunities, workers’ participation in management, human capital
investment, etc., or whether state or markets should be favoured in order to
achieve goals of equity.
During the initial phases of globalisation, major episodes of domestic
economy overhaul tended to coincide with forms of economic structural
modernisation that concerned both capital and labour markets. Margaret
Thatcher has gone down in history for having done away with the control
previously exercised by trade unions over British industry, but an equally
important achievement was the renewed dynamism in capital markets,
which opened up corporate ownership and shareholding. More recently
the overhaul of the German economy has gone through two phases: first
the reform of capitalism, which occurred partly spontaneously, partly
through corporate governance reforms, and secondly, with the Agenda
2010 reforms, which removed a number of rigidities in labour market
regulation as well. Some economists have claimed that in order to be
effective, product market liberalisation requires labour market
liberalisation. Although the rule is not very well defined, non-constituencybased economic reform (at least in the 20th century acceptance of these
terms) does appear to be effective.
As societies evolve towards knowledge economies, with service
sector development and increasing dismantlement of borders in terms both
of corporate ownership and production processes – with recent business
theories talking of globally distributed tasks with no regard for the local
production processes that used to ground specificity, as well as regional
and community politics – we increasingly need a societal description that
will not fragment around age-old splits between labour and capital: a
society we could deem, for simplicity’s sake, an open society. In open
societies within a globalised economy, constituency protectionism has even
less of a functional rationale than it did before.
Overcoming the reservations of the electoral interests/protection
structures connection therefore requires one to spell out the true benefits to
be derived from an open economy. If the European Union manages to
convince voters in its member states of the political advantages and
economic benefits to be derived from an open society, it will also manage in
PARTISAN PROTECTIONISM | 21
the process to repair the damage that has proved so detrimental to its
future – but this will however not happen without the input of national
policies. Domestic constituency-based political strategies need to focus on
investing in human capital – according to different modalities, with
different roles bestowed on public and private sectors depending on
individual ideological preferences – and on making the most of global
opportunities to date unconfined by domestic borders, so as to trigger a
race towards controlled openness. Economic benefits, openness, joint
government could thus become the terms of a new virtuous circle.
The whole issue of protecting citizens against economic and social
risk cannot be swept under the carpet simply by passing negative judgment
on protectionism, which uses it to manipulate matters politically. We
would rather view support for the European Union as the outcome of a
linear process: as economies become ever more open, innovation and
productivity increase, and in turn generate jobs and prosperity which in
turn elicit support in citizens both for national governments and for
European institutions. This approach is reflected in the very history of
European integration and the specific technical and economic ‘vehicles’
that have guaranteed its progress. In recent years, however, it has become
ever clearer that the logical sequencing mentioned above – openness,
reform, economic success, political support – does not correspond to the
way most Europeans think. To quote Liddle & Lerais (2007), “the citizens of
our countries think that globalisation, market liberalisation and the
constant quest for competitive advantages are at least as much a threat as a
cure”. Citizens want some sort of risk insurance and failing this, the
demand for protectionism will continue to rise. Globalisation is the
reference framework within which the new finalities of the European
Union must be defined. In the face of emerging new economic powers, of
open borders, of major global phenomena – from climate change to
terrorism – the European Union is positing itself as an institutional
framework where demands for openness must adequately be met,
alongside demands for security. Should this not happen, constituency
protectionism shall prevail domestically, and support for the EU will
decline. We may pretend that the need for security isn’t there, but
whenever European voters have their say we shall see that this ‘perverted’,
obsessive search for protection does indeed exist.
Guaranteeing openness, while providing some form of security,
assumes the ability to govern: the ability responsibly to reach decisions on
the implicit choices underpinning trade-offs between growth and security
22 | CARLO BASTASIN
or, for those who doubt that there are such trade-offs, between short-term
insecurity and long-term growth. This inter-temporal bridging function
also assumes the ability to govern, be it only because there is no systematic
synchronicity between power and responsibility. It is no wonder that a
significant number of European citizens feel that in the face of economic
globalisation, their request for security has remained unanswered by the
European Union. The Union, insofar as it has only integrated markets, is in
fact perceived on a par with globalisation: that is, first and foremost, as an
unaccountable player in the openness policy. Leaving aside a number of
dubious initiatives such as the European Globalisation Adjustment Fund
(EGF), to date its political response to the request for security has been to
state that the issue was not its concern, and that all it could do was wait for
the restructuring of European economies to yield economic dividends to
the public at large.
Feelings of insecurity have further grown as other significant events
have highlighted that the European Union is very often at loggerheads with
member states when it comes to economic coordination. The need to
engage in the structural reform of domestic economic systems has in fact
coincided with fiscal consolidation in almost all member states, giving rise
to financial re-balancing processes that have often proved painful and with
no end in sight, and that have thus increased citizens’ feelings of utter
isolation in the face of the costs of globalisation. Rationales for fiscal
consolidation include aspects of relevance to citizen support: the need for
long-term sustainability as populations age (which is tantamount to
securing welfare systems); a clearly defined efficiency requirement applied
to the use of public monies; and a preference for lower tax burdens in view
of the increased heterogeneity of our societies. But insofar as this process
has coincided with the single (global) market’s initial economic pressures, it
has amplified contradictions between resource redistribution required
locally for fiscal consolidation, and resource redistribution required by the
opening up of our economies – which is now eliciting much (politically
expressed) vexation.
Faced with the social costs of economic change and financial
consolidation, individual member states and the European Union have
often adopted opposing attitudes vis-à-vis citizens. Domestically, citizens
have two basic references – their welfare systems and their protection (or
closed economy) requirements, which they put to political parties as
markets open up, and liberalisation proceeds apace. At the European level,
fiscal consolidation and market openness requirements – in other words
PARTISAN PROTECTIONISM | 23
requirements that are the very opposite of citizens’ protection requirements
– are written into the very history of the Union. The EU has accrued long
experience in coming to terms with issues of openness and challenges
posed by structural reform. From the common to the single market, and
then on to monetary union and the Lisbon agenda, the European Union has
strengthened the dynamic vectors of border dismantlement and economic
restructuring. And the same has obtained for fiscal consolidation: stability
and fiscal discipline, convergence criteria, the Growth and Stability Pact all
go to show European citizens that the political language of globalisation
resides in Brussels, and not in their own national capitals and that
moreover, this language is far removed from their possible control.
However legitimate may be the criticism levelled against some national
governments who indulge in ‘Europe-bashing’, one must acknowledge that
a number of structural reasons do explain the fact that in the absence of a
genuine ability to govern on the part of Brussels and therefore of an ability
to promote both openness and security – citizens’ dissatisfaction vis-à-vis
uncontrollable social phenomena will quite naturally target the European
Union.
It is therefore clear that in order not to fuel demand for protectionism,
attention must be paid to this demand for protection: and thus forms of risk
insurance must be provided that cover, first of all, the future of the welfare
state. Because in the end, uncertainties in this respect may well explain the
failure of so many polls on European issues.
5.
Welfare
Thinking about the future of the welfare state in Europe requires a dynamic
approach. It so happens that the factor that defines the priority ranking of
the European social state is dynamic, including its productive structure,
savings parameters and aggregate demand features. Clearly my reference
here is to population aging, with its weighty consequences in terms of
pensions and healthcare spending. According to UN data, people aged 65
and over will account for more than a quarter of the total population in
2030, as against 8% in 1950 and 14% in 2000. Population aging has a
dramatic impact on financing schemes based on workers’ contributions. In
some European countries, such as Italy and Spain, the dependency rate of
retirees vis-à-vis workers is going to double in less than 50 years, growing
in Italy from 27.9% in 2000 (26% in Spain) to 64.5% in 2050 (63.5% in Spain).
In most countries welfare reforms undertaken in the 1990s focused on the
24 | CARLO BASTASIN
issue of pension scheme funding. Starting off with incremental corrections
that slightly altered or somewhat tightened pension scheme parameters,
reforms then focused on structural features including entitlements,
indexation rules and retirement age. Currently, official EU forecasts for
some countries point to dramatic growth in the impact of pension-related
payments on public spending. In Spain, estimates point to a quasidoubling, from 9.4% of GDP to 17.7%. Budgets will also have to contend
with other increases in spending stemming from aging-related social
programmes. According to estimates, the comprehensive increase is likely
to total 3% to 10% of GDP, depending on welfare provisions and
demographics. These fiscal consequences clearly show that unless
measures are taken in time, the situation may well become politically
untenable. As we know, within aging societies, voters’ interests tend to
increase the political cost of reform. Under the circumstances the issue of
political compatibility between European economic, monetary and fiscal
integration on the one hand, and the political and social sensitivities
expressed at the domestic level on the other, must thus once again be
addressed. One can easily envision domestic political costs being shifted to
Europe. A risk that may however conceal an opportunity: couldn’t
European integration help member states safeguard welfare state equilibria,
while strengthening citizens’ trust in Europe?
Regarding the future of welfare systems there are at least three
different possible outcomes, depending on the scope and quality of
political initiative assigned to supranational bodies. The first is a European
welfare system, modelled on national systems, administered by a
continent-wide bureaucracy. The second is a system where national welfare
schemes are not connected to European institutions, as these are not
deemed to have any right to interfere in the social risk insurance models
chosen by individual member states. The third is a regulated market for
welfare schemes, where individual countries guarantee the universal
coverage of their citizens at levels determined through regulation and
redistribution, but where service provision by entities of all countries, both
public and private, is allowed.
The first of these possible outcomes is not popular and governments
advocating such a way forward would be headed towards political suicide.
Delegating part of the responsibility for pension scheme management to a
supranational institution such as the European Commission might help
individual states reduce the political cost of reform, but would increase
public distrust of Brussels and in the end might even risk weakening
PARTISAN PROTECTIONISM | 25
support for further European-level reform. The second outcome
corresponds to the ‘separate track’ approach adopted so far. When the
integration project was first launched in the 1950s, federalist discourse
highlighting an ‘ever closer to citizens’ stance and various functional spillovers was underpinned by the idea that the European Community should
focus on opening markets in economic terms, while individual states
retained control over welfare and social solidarity schemes. Starting in the
1980s this division of labour became somewhat unrealistic and with
monetary union it has become downright counterproductive. To echo
Ferrera (2006), insulating national welfare schemes from the dynamics of
economic integration and supranational interference has long since ceased
to be possible. This means that one should look into the third possible
outcome, the only one that is both “realistic and European” (a point
comprehensively addressed by Gareth Davies (2006): a European-wide
regulated market for welfare services that would recognisably propose the
European Union’s social model, leaving the first pillar – which remains
symbolically so important to national identity – under national jurisdiction,
albeit within a European coordination and control framework, while
developing a second pillar through a truly integrated market for voluntary
pension schemes and supplemental health care coverage, eliciting public
and private supply of increasingly efficient services, disconnected from
territorial origin.
There are many forces driving market-based harmonisation of
European welfare systems and in particular focusing on provision of
services by both public and private players. The first has to do with the
quest for more efficiency in public spending and is linked to citizens’ tax
preferences as well as to the need for effective public support at a time
when private sectors are undergoing intense restructuring. Further impetus
stems from economic coordination at the European level with a view to
achieving greater convergence in public spending at least in terms of public
policy stability and, to a lesser extent, quality. Another force has to do with
‘negative’ integration (i.e. the elimination of national protection) spurred by
European jurisdictions wherever public services, because of their economic
nature, come under European freedom of movement legislation, despite the
well-known distinctions set forth in the Bolkestein Directive regarding
welfare service liberalisation, in particular with respect to healthcare, but
also more broadly to services targeting social objectives or presenting
general economic interest.
26 | CARLO BASTASIN
The trend towards privatisation of a significant part of national
welfare schemes can contribute to the harmonisation of European social
assistance services insofar as private providers of welfare services, such as
a German hospital, a British university or a Dutch pension fund, can
provide similar services in a variety of different countries. These trends
further reflect a number of other developments linked to the
dismantlement of state economic monopolies, which has led both to an
increase in the numbers of providers of public services and to a
diversification in terms of quality. Thus, while continuing to uphold the
right of all citizens to welfare coverage, an increasing number of countries
handle health insurance and pension schemes through private providers;
the privatisation process stems from the need for more rigor, and therefore
more cost control in public spending. With public and private providers
working in parallel, the former are encouraged to be more efficient, which
corresponds to a general request on the part of public opinion. Finally,
private providers, which are often able to break down the actual cost of
services, allow for greater user choice.
The European Court of Justice has considered healthcare systems to
be an ‘economic activity’, while it has refused similarly to define higher
education as such. But if welfare services are considered to be an economic
activity, one can hardly shield them from the freedom of circulation of
services rule that in practice voids the nationality requirement for both
providers and users of such services. The real obstacle to European action
favouring welfare system integration lies therefore not in the European
Union’s history nor in its current legislation, but in an absolute lack of
political will.
In discussions on the Bolkestein Directive, which liberalises markets
for services, the idea of including healthcare services met with quite
considerable resistance, despite the fact that the Court had deemed them to
be an economic activity. There appears to be considerable resolve on the
part of both governments and citizens to retain control over individual
welfare systems, regardless of the clear efficiency gains that might derive
from a broader market, more specialised providers and quality controls
that would prove efficient even vis-à-vis state monopolies.
That said, welfare systems are one of the few fields addressed by
politics in which each and every citizen has a concrete, direct and personal
interest. It is quite understandable that citizens should wish to retain
control over such interests, especially vis-à-vis European institutions the
PARTISAN PROTECTIONISM | 27
nature, efficiency and accountability of which they only dimly see.
Resistance on the part of national political establishments, fearful of losing
the power and influence they currently wield, is even stronger. This means
that politically, no proposal to engage in positive welfare system
harmonisation is likely to come forward, which paradoxically has the effect
that markets will be left free to circumvent the regulatory obstacles defined
by individual member states. Lack of governance or direction thus often
leads to situations where citizens increasingly distrust politics and
globalisation. Unregulated welfare service provision does not however
guarantee that the solidarity dimension of current systems will be carried
over, regardless of the significance of this dimension within citizens’ more
general request for security. The provision of private services of differing
qualities actually tends to drive a wedge into the quality of social services
on offer, but because of correlations between homogeneity and public
solidarity, increased heterogeneity may transform the reasons for which
citizens typically support European forms of solidarity. For changes to
welfare systems – required to make them sustainable, efficient and ‘open’ –
to be politically neutral, these changes must be governed and steered, and
part of the political responsibility for this – even if only regulating private,
non-national welfare service providers – shall inevitably behove European
institutions.
In order to be credible in taking this responsibility over from
individual member states, European institutions cannot avoid engaging in
some serious thinking on how they themselves view individuals and
societies. This is a difficult and demanding task, and it is no accident that to
date it has failed to achieve one of its primary goals: laying constitutional
ground for the whole structure. Positing a European welfare model based
on regulated market services, rather than proposing a simple state model
with monopoly over user choice, implies that European institutions have to
become providers not only of rules and controls, but also of safeguards
regarding citizens’ freedom to choose.
According to Ferrera (2006), realistic approaches to the reconciliation
of economic reform and social stability require political innovation to be
even more structured at the common level, and demand that domestic
welfare systems be slotted into a framework that currently lacks a multilevel European area of citizenship, on the basis of a joint catalogue of basic
civil, political and social rights, including a European safeguard in terms of
minimum (or sufficient) resources that could possibly be financed directly
out of the European budget. This more ambitious qualification of the social
28 | CARLO BASTASIN
dimension of European citizenship could open avenues to pilot initiatives
aiming to address specific societal problems in Europe: combating youth
poverty, setting up loan systems for higher education funding, supporting
single mothers, easing cross-border mobility.
6.
Beyond partisan protectionism
The framework described above assumes the ability to develop a new
political vision that can focus on long-term goals, renounce 20th century
social categories and encourage the opening up of a European welfare
services market through state and market cooperation. This political
initiative is consistent at the European level, but less so nationally. In order
to respond to requests for innovation and political initiative, both relevant
and accountable, a European space has to be opened up to political parties,
so that they may reformulate their programmes at the European level in a
consistent manner, and ultimately internalise goals of openness and intertemporal consistency in their domestic programmes as well.
The fact that the European Union is still basically inter-governmental
fuels interest in heterogeneity and keeps European parties from having a
clear agenda. National parties that have regrouped at the European level all
know that their preferences – and those of their voters – are essentially
upheld by their co-nationals, regardless of party affiliation, more so than by
their own political allies in other countries.
The functional and segmented nature of jurisdiction within the
European Union is one of the factors currently hindering the development
of European parties. Such parties, insofar as they are general players, put
forth broad visions of society that connect a variety of different interests
and different areas of activity, and that therefore do not lend themselves
readily to the functional nature of European initiatives. That said, when
addressing the issue of European welfare systems, broader social visions
are difficult to avoid. Empirical surveys have furthermore shown that
citizen and party positions on Europe are not only determined by national
origin, but that a form of ideological polarisation is on the rise around leftand right-wing lines that is not being expressed directly through
conventional opposition between capital and labour, but upstream from
that, as openness versus protection. Analysing voting patterns in the
European Parliament shows that it is the opposition between ‘regulators’
and ‘open market supporters’ that has determined the outcome of many a
debate.
PARTISAN PROTECTIONISM | 29
Integrated welfare systems require that a proper state-market mix be
defined. This mix must be non-ideological, despite the fact that state and
market have for decades now been the focus of ideological confrontation.
Building a welfare service market with publicly set goals and regulations
therefore needs to involve all major parties represented in the European
Parliament.
This process must start at the national political level. Earlier in this
chapter, I posited the view that national politics, which currently play a
determining role in the generation of citizen support for the European
Union, are conditioned by a specific operating principle that I have called
‘partisan protectionism’. Within this principle, the right and left can be
distinguished from one another by the fact that they protect capital and
labour respectively – and therefore resist openness – while exposing the
other production factor to external competition. Careful reading of the
positions put forth by national governments in discussions on Europe, and
more importantly still, of the policy stances they uphold on their own
ground, that of national parliamentary debate, illustrates the explanatory
powers of this partisan protectionism concept, which is in fact the coming
together of the two forms of political polarisation we observe today: the
coming together of demands for closure as opposed to openness, and
demands for left-right polarisation. The political maturity required to
overcome constituency protectionism has to do with how both right and
left define their positions. More specifically, it has to do with the fact that
the left needs to define itself as the political power upholding an open
welfare service provision and labour market operation model – rather than
express protective functions solely in terms of closed economies and
markets, while the right needs quite as provocatively to open up capital
markets to competition. It is only through an opening up of welfare
provision to private market players that the left will prove able to save the
social state. Just as exposing corporations to competition is the only way
the right can guarantee that nationality doesn’t become an obstacle. And it
is only through the joint contribution of both left and right thus defined
that an effective and non-national welfare provision system may emerge.
I am basically convinced that it behoves left- and right-wing
politicians with a vision to formulate social programmes that provide for
welfare system reform and the comprehensive opening of capital markets
so that state and market can work together, each serving the other, and
then resume confrontation, without antiquated diversions, as to what
European citizens want in terms of equity or individual freedoms.
30 | CARLO BASTASIN
References
Davies, G. (2006), The Process and Side-Effects of Harmonisation of European
Welfare States, Jean Monnet Working Paper No. 2/06, Jean Monnet
Center for International and Regional Law and Justice, NYU School
of Law, New York.
European Commission (2009), The Economic Crisis: Its impact on Member
States and how they are responding to it, Occasional Paper No. 6-2009,
Brussels.
Ferrera, M. (2006), speech at colloquium on The Social Dimension of the
European Union: What are the Prospects?, Centre d’Analyse
Stratégique, Bureau du Premier Ministre, Paris, 23 October.
Liddle, R. and F. Lerais (2007), Europe’s Social Reality, A consultation paper
from the Bureau of European Policy Advisers (BEPA), European
Commission, Brussels.
Schmidt, V. (2006), Democracy in Europe. The EU and National Polities,
Oxford: Oxford University Press.
3. A MORE SOCIAL EU:
ISSUES OF WHERE AND HOW
MAURIZIO FERRERA & STEFANO SACCHI*
Introduction
Over the last few years, the two enlargements and the three referenda on
new treaty texts have prompted a far-reaching debate on social Europe. To
a large extent this debate has focused on the problems and prospects of
national welfare regimes: their persistent difficulties, their comparative
performance and their reform trajectories. But discussion has also focused,
at least in part, on the social dimension of the EU proper: on what might be
called the ‘social EU’.
This chapter explores this second topic, the social dimension of the
European Union as a political entity in its own right. In the process, we
shall try to answer two sensitive questions:
Do we need a more social EU, that is, to engage in more
supranational activism in the social sphere?
And if so, why and how?
1.
The need for a more social European Union
Our answer to that first question is straightforward: yes, we do need a
more social EU. We believe this to be the case for three broad reasons: the
first has to do with social justice, the second with economic efficiency and
the last with the legitimacy of the EU polity and its ability to command
widespread positive support among European citizens.
We gratefully acknowledge research assistance by Krzysztof Nowaczek and
warmly thank Fabrizia Peirce for her valuable help in producing the final version
of this chapter.
*
| 31
32 | FERRERA & SACCHI
First, we need a more social EU in order to secure a fairer, more
equitable distribution of life chances for EU citizens, both within and
between member states. This is the ‘social cohesion’, or ‘social justice’
rationale. According to the treaties, the EU has a broad mission, that of
promoting economic and social progress (Article 2, Treaty on European
Union). Unless one believes in a naïve version of the trickle-down effect of
growth, the pursuit of economic prosperity through efficient and open
markets should thus be accompanied by an agenda for social progress,
resting on key values (such as fairness, justice or social security) that are
widely shared and deeply rooted in Europe’s political cultures.1 While
there can be no doubt that this agenda includes areas and policies that
legally come under national jurisdiction, it should be equally clear that the
EU has a role to play, both directly (by exercising its legal powers to sustain
and complement national social justice agendas) and indirectly (by
mainstreaming, as it were, social cohesion/justice considerations within its
own growth and jobs agenda, more so than it seems to have done so far
under the new Lisbon strategy).
Second, we need a more social EU in order to improve the
functioning of the internal market, and thus generate more growth and jobs
(this is the ‘economic efficiency’ rationale). A wealth of political economy
research has shown that social policies can play an important role not only
as redistributive instruments and vehicles for social and political
consensus, but also as ‘productive factors’. This was one of the original
assumptions of the Lisbon strategy and the ‘modernisation’ agenda set
forth by the European Commission in the 1990s. At the theoretical level the
positive (i.e. efficiency-enhancing) effects of social policy can be sketched
out relatively easily: social insurance allows for riskier educational and
occupational choices that increase the expected lifetime income of
individuals, regardless of the risk-taking outcome: “Under the protection of
However crude the indicator, it is telling that 17% of all European respondents
listed the gap between the rich and the poor as one of their three main current
concerns when offered a choice of 17 items, including pensions, terrorism, health,
immigration, crime, the environment, globalisation and economic growth (see
Eurobarometer, 2007b). In a more recent survey a vast majority of Europeans (87%)
agreed on the following statement: “There should be policies ensuring that the gap
between the rich and the poor is reduced significantly in our country”
(Eurobarometer, 2008a).
1
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 33
the welfare state, more can be dared”, to quote Hans Werner Sinn (1995, p.
507). At the practical level, however, identifying which policies can
enhance productivity and competitiveness (and how exactly they do so) is a
difficult task, as is quantifying the ‘costs of no/non-social policy’, or having
one that is too limited, as illustrated by the ongoing debate on the actual
effectiveness of active labour market policies. But the tasks are not per se
impossible, and certainly such a pars construens is required (at the EU level)
to offset the pars destruens of highlighting the negative effects that may stem
from a status quo of social protection schemes in member states.
Thirdly, and possibly most importantly, we need a more social EU in
order to secure continuing support for the integration process on the part of
an increasingly worried public (and this is the ‘social and political
legitimacy’ rationale). Recent opinion polls have provided growing
evidence that the EU is perceived as a potentially dangerous entity by a
majority of its citizens, as a threat to national labour markets and social
protection systems, as a ‘Trojan horse’ serving the malevolent interests of
globalisation.2 Some initiatives on the part of the European Commission,
such as the initial drafting of the Services Directive and some rulings by the
European Court of Justice, as in the Viking, Laval and Rüffert cases, were
received with great anxiety by large segments of the EU citizenry,
particularly those more exposed to the consequences of economic opening.
Mass perceptions can be factually wrong, but they do play a crucial role in
politics. We know that post-war social protection systems and the welfare
state have created extraordinary bonds between European citizens and
their national institutions, bringing about a form of close allegiance, based
on the institutionalised exchange of material benefits for electoral support.
The EU, conversely, has been rather weak in terms of identity and
allegiance-building. What neo-functionalist thinkers and statesmen had
hoped for, and sometimes even forecast, never actually happened:
European citizens have not systematically shifted their loyalties from
domestic to supranational institutions. What binds European citizens (i.e.
citizens of EU member states) to the EU is in fact a different kind of loyalty:
a derived, secondary allegiance, which persists only as long the EU is
2 As early as 2006, over 70% of all European citizens feared that ‘the building of
Europe’ might entail the transfer of jobs to other member countries with lower
production costs, while 50% feared that it might entail the loss of social benefits
(see Eurobarometer, 2007a).
34 | FERRERA & SACCHI
capable of providing resources to its member states, thereby reinforcing the
direct, primary allegiance that links members of national political
communities to their domestic institutions. The initial division of labour
envisaged by the founding fathers of the European Economic Community
(EEC) in 1957 had precisely this focus: the Community was to promote
economic prosperity by opening markets and generating economies of
scale, thus providing member states with resources they could use to
power their own social protection systems, to engage in (welfare) statebuilding – or state-rescuing, in the wake of the Second World War, to echo
Alan Milward (1992). As we shall see, in recent decades this division of
labour has collapsed, and the European (economic) integration process has
tended to encroach upon domestic social solidarity institutions, without
rebuilding at the EU level what was being constrained domestically. Hence
the widespread concerns that revolve around European construction.
In short: if voters’ anxieties are not alleviated, if they are not
convinced that ‘the EU cares’ (through direct and indirect action, or nonaction), the integration process may be seriously de-legitimised and
jeopardised by xenophobic sentiments and neo-protectionist demands
voiced by those social groups that are most directly affected by economic
opening. The economic crisis has undoubtedly intensified this challenge.
2.
How to build a more social EU
The three rationales we have identified to show that we require a more
social EU are analytically distinct, but they are of course interrelated and
mutually re-enforcing. Judging by documents and official statements (such
as the Presidency Conclusions of the 2007 Spring Council, the Berlin
Declaration, signed on the 50th anniversary of the Treaty of Rome or the
new Article 2 of the Treaty on European Union – Article 3 of the
consolidated version – which states that the Union is based on “a highly
competitive social market economy”, promoting social justice and
protection), they now seem to elicit a relatively broad consensus among
both national and Community policy-makers. By the same token, opinion
polls show that European citizens are quite unhappy with the EU’s
performance in the social field, and combating poverty and unemployment
are consistently ranked as the top two actions that the EU should engage in
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 35
as a matter of priority.3 Recent surveys make it very clear that EU citizens
want the EU to deliver more and better in the social field: in late 2008
employment and social affairs was the policy area with the greatest
discrepancy between the perceived and desired resources spent from the
EU budget (Eurobarometer, 2008b); in the summer of 2009, 34% of
respondents asked for greater financial commitment from the European
Social Fund (Eurobarometer, 2009). Moreover, a European welfare system,
whatever that may mean, is seen as the best strategy to strengthen
European citizenship (better than, among other things, adopting a
European constitution).4
The problem is, where do we go from here? Answering our second
question – provided that we need a more social EU, what purpose should it
serve and what form should it take? – is indeed more complex. In which
areas, exactly, should the social dimension of the EU be strengthened?
What are the social challenges that require a response at the EU level rather
than at national levels? In our quest for an answer, it may prove useful to
recall a distinction often used in past debates on ‘Social Europe’, which
remains heuristically valid: the distinction between common and similar
social challenges.
Common challenges originate from a single exogenous factor or set of
factors (e.g. cross-border liberalisations). These challenges affect all
member states at the same time and require some type of joint response
(national solutions are sub-optimal). It is on this front that a stronger social
EU is needed urgently.
“The protection of social rights” and “the fight against unemployment” are the
two items ranked the lowest in a poll where respondents were asked to assess EU
performance in a set of 15 policy areas including, inter alia, the protection of
human rights, the fight against terrorism, equal treatment of men and women, and
the promotion of democracy and peace in the world. (“Ensuring economic growth”
also ranked poorly.) See Eurobarometer (2006). As for the steps the EU should take
as a matter of priority, see for instance Eurobarometer (2007c) and Eurobarometer
(2008a). Still, what the EU currently does in the area of employment and social
affairs is positively evaluated by a majority of respondents in Eurobarometer
(2009).
3
4
See QA20, Eurobarometer (2006).
36 | FERRERA & SACCHI
Similar challenges, on the other hand, originate from largely
endogenous dynamics (e.g. demographic ageing or changing family and
gender relations) and can be met through different, path-dependent
national responses. On this front, a stronger social EU is less urgent, but
can still play a crucial role, with some qualifications.
3.
Supplementing the internal market with social rights
What is the most pressing common challenge currently confronting national
welfare states? Undoubtedly, it is the internal market. In recent decades,
and in the past ten years in particular, the internal market (and more
specifically the free movement of labour and services) has come to strain
the social policy and employment regimes of member states. Recent
enlargements have significantly accelerated this process. As we have seen,
the original treaties envisaged a division of labour between supranational
and national levels: the Community was to be instrumental in opening up
markets and helping achieve otherwise unattainable economies of scale, so
as to generate resources that member states could use in the
institutionalised exchange of social benefits – flowing from their national
welfare institutions – for regime support on the part of their domestic
political communities. “Keynes at home, Smith abroad”, as Robert Gilpin
(1987, p. 355) aptly dubbed this kind of embedded liberalism arrangement.
This justified the weakness of the social provisions in the Rome Treaty:
from equality of treatment for men and women (which incidentally was not
meant to bestow rights directly upon citizens, but rather to ground
supranational action and guarantee a level playing field for European
companies) to the coordination of social security regimes. All the social
provisions and articles contained therein were instrumental in the
dismantling of non-tariff barriers to trade and the creation of a higher
economic order featuring unconstrained economic trade flows. However,
this supranational liberal order rested upon, or rather was embedded in
national welfare states that were to be equally unconstrained in terms of
social regulation capabilities, and in particular would not be constrained by
the supranational authorities. This was the rationale behind the paucity of
social provisions in the Rome Treaty, and for the economic instrumentality
of those few included in it: social policy was the business of national
institutions only. Put differently, this division of labour implied separating
the jurisdiction between the supranational and national levels, thus
establishing ‘mutual non-interference’ between market-making and
market-correcting functions. European competition law and the four
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 37
freedoms were not supposed to impinge upon member states’ sovereignty
in the social sphere (Giubboni, 2003).
This did not last. Firstly, international political economy conditions
have changed since the 1970s, and the embedded liberalism compromise
has floundered. Moreover, and more importantly still as regards European
integration, the Community legal order has been constitutionalised – to
quote Joseph Weiler (1999). More specifically, the supremacy of
Community law over domestic legislation has, along with direct effect, torn
the initial division of labour to pieces: if Community law trumps national
law, then provisions geared to fostering unconstrained competition (i.e. the
Treaty provisions) trump social regulation, as enshrined in national
constitutions and laws, and ECJ judges, contrary to national constitutional
judges, will be constrained in balancing economic and social interests
whenever these clash (Scharpf, 2009). This state of affairs has of course
become more apparent as the economic integration process has deepened:
from the White Paper on the internal market through to the Single
European Act and the Maastricht Treaty, and then to EMU, the integration
of European economies has progressed at a spectacular pace, without being
matched by anything similar in the social realm. What we have tried to
argue so far is that reasserting the original competence allocation – marketmaking with the EU, social policy with the member states – simply will not
do the trick, since social policy at the national level is no longer safe from
‘intrusion’ (or ‘infiltration’, as Gérard Lyon-Caen puts it (1992)) by the
European economic constitution, as many ECJ rulings have by now made
quite clear (Ferrera, 2005).
When it comes to social protection systems, it is the free movement of
labour and services that poses the greatest challenge to the viability of
domestic social solidarity arrangements as we know them, even though it is
noteworthy that the ECJ has not always operated as a ‘market police force’,
and has on several occasions granted some degree of ‘immunity’ against
European market law to national welfare institutions and practices.
However, in the absence of a Treaty ‘hook’, it has done so on the grounds
of legal arguments that may well be overridden in the future. In addition
member states are investing a lot of energy in cushioning their social
protection systems against challenges stemming from European law,
whether by not complying with rulings, agreeing among themselves to
change European law or even failing to introduce new social programmes
that could subsequently become the object of European court action. This
may well be one of the reasons why such issues have not yet come to the
38 | FERRERA & SACCHI
fore of public debate in Europe and remain confined to insider circles: their
potentially disruptive outcomes have so far been buffered by member
states’ reactions. But how long can this last? Member states may be
compared to those cyclists who track stand – expending a lot of energy in
order to maintain their position.
Let there be no mistake: freedom of movement for persons and
services has opened up opportunities and brought about tremendous
benefits for individual citizens, despite the challenges to national welfare
systems. If unregulated, however, this enhanced freedom for individuals
may come at the cost of severe systemic disruptions, or even failure –
which may in turn result in diminished welfare provision for all. It is
certainly a good thing that Mrs Watts and many in her situation all over
Europe can now get prompt treatment abroad paid for by their own
domestic healthcare schemes; however, when this comes at the risk of
disrupting a basic organisational tool of contemporary health systems, i.e.
waiting lists, clearly some direction is called for.5
To some extent, the European Union is experiencing a ‘social
question’ (as well as a ‘governance issue’) that is not too dissimilar from
that experienced by European nations in the second half of the 19th
century, when the ‘freedom to work’ became a universal civil right and
local labour markets merged to give rise to single ‘domestic’ labour
markets, which were then subjected to common standards (labour laws,
unemployment and more generally social insurance, national labour
exchanges, etc.).
In his groundbreaking historical analysis of modern citizenship, T.H.
Marshall (1950) suggested that the evolution of this institution involved a
two-fold process of fusion, and of separation. The fusion was geographical
and entailed the dismantling of local privileges and immunities, the
We refer here to the ECJ ruling in the Watts case (C-372/04, decided on 16 May
2006). The Court ruled that a refusal to grant prior authorisation for treatment
abroad paid for by domestic authorities could not be based solely on the existence
of waiting lists intended to allow for the planning and management of hospital
care supply on the basis of predetermined general clinical priorities, without there
having been an objective medical assessment of the patient’s condition. Where
delays arising from such waiting lists appeared unacceptable, in the light of the
patient’s assessed condition, the competent institution could not refuse
authorisation for treatment abroad.
5
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 39
harmonisation of rights and obligations throughout the national territory
concerned and the establishment of a level playing field (the equal status of
citizens) within state borders. The separation was functional and entailed
the creation of new sources of nationwide authority and jurisdiction, as
well as new specialised institutions for the implementation of that
authority and that jurisdiction at a decentralised level.
The present historical phase is reproducing this double challenge of
fusion and separation under new guises. As was the case domestically 150
years ago, freedom of movement can now be a tremendous trigger for
growth and job creation in the EU’s internal market, and can therefore
enhance welfare for European citizens. But without adequate supranational
norms and governance (a stronger ‘social’ EU), this new market will not
work effectively and in fact runs the risk of reducing individual welfare.
Again, fusion requires institutional innovation in order to fully bear fruit
(under the economic rationale), and to safeguard the equitable distribution
of such outcomes (under the social justice rationale) in a context of social
peace and political stability (under the legitimacy rationale).
Managing the social implications of freedom of movement (or, to put it
another way, securing the social complements of the internal market) ought
to be the primary goal of a stronger ‘social’ EU, which would seek to
eschew the risk of biting the hand that feeds it by not jeopardising the bond
between citizens and their welfare states, and being made to bear the blame
for whatever storm member states would then have to face. On the basis of
what we have discussed so far, it is clear that only the EU can perform this
task. But how should it go?
There already is, of course, an acquis of hard norms that have been
introduced over time precisely (or primarily) with a view to paralleling
market ‘fusion’ with a modicum of social harmonisation. Some of these
norms (such as the Directives on non-standard employment, or on gender
discrimination) also address new social risks in a post-industrial society.
But what are the new and further steps that should be taken in this
direction in the current post-industrial (and post-enlargement) context –
also considering the deep impact of the crisis? We believe that the
following would be the most natural candidates for the task at hand:
•
Establishing (or strengthening) a common floor of labour law
guarantees, especially for non-standard, irregular workers;
•
Agreeing on common definitions and criteria regarding those areas
(such as social security, services of general interest, etc.) that are
40 | FERRERA & SACCHI
particularly sensitive to greater freedom of movement, thus finding a
proper balance between the goals of ‘dismantling local immunities
and privileges’ and that of preserving legitimate national diversities;
•
Establishing common rules on a minimum wage on the one hand, and
launching a Community initiative on a generalised minimum income
guarantee on the other, in order to protect the most vulnerable;
•
Updating and fine-tuning social security regimes for migrant
workers;
•
Establishing something along the lines of a ‘European Audit Board’
for the oversight of contractual practices, in order to avoid social
dumping.
Progress on these fronts was advocated by a declaration on
“Enhancing Social Europe” signed by the Labour ministers of eight
member states (Belgium, Bulgaria, Greece, Spain, France, Italy, Cyprus and
Hungary) in February 2007 – to little avail, in the end. Still, on each of these
fronts a number of relatively detailed proposals has begun to circulate. To
name but a few, the issue of a common floor of labour law guarantees,
dealing with the working conditions of all workers, regardless of their
work contract (and therefore also applying to irregular workers) was put
forward in the 2006 Green Paper on labour law. The Lisbon Treaty,
meanwhile, includes a Protocol on services of general interest and retains
the so-called horizontal social clause written into the Constitutional Treaty
Article 9 of the Treaty on the Functioning of the European Union, which
introduced a form of ‘social mainstreaming’ by stating that, in
implementing its policies, the Union should take into account social
requirements (Ferrera, 2009).
The issue of a minimum income guarantee is also important, and
deserves more attention insofar as it may well be a very promising way of
securing the social complements of the internal market, according to our
definition of the approach required. This might take the form of
Community-wide legal provisions regulating minimum income schemes at
the national level (a Community Directive on this topic was originally put
forward by the Commission in 1992, but was downgraded to mere
communication status following member states’ opposition). This would
regulate, and possibly improve, benefit provision in countries where such
schemes exist, and spur into action those (such as Greece, Italy and
Hungary – ironically, three of the signatories to the plea to “Enhance Social
Europe”) that do not have a generalised means-tested scheme. This might
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 41
also take the form of a pan-European welfare scheme, locally administered
but stemming directly from the EU. Certain concrete proposals along these
lines have been circulating for some time in academic circles.6 It is not our
intention to assess the pros and cons of this thought-provoking idea here,
knowing that in any event it would need to be carefully crafted lest it
generate opportunistic behaviour on the part of citizens and national
governments alike. It could however be instrumental in building some
form of direct allegiance between European citizens and the EU, thus
replicating at the supranational level, in a sense, the formidable bonding
tool constituted of social protection schemes at the national level.
Another measure that addresses common challenges (albeit those
posed by globalisation and now the economic crisis, rather than the internal
market) and that — if well crafted and publicised — could help forge
bonds between the EU and its citizens, thus providing legitimacy to the
former, is the European Globalisation Adjustment Fund launched at the
beginning of 2007. This aims at providing European workers made
redundant because of globalisation (under trade-induced mass layoffs)
with time-limited direct support in finding new jobs. The idea here is that
funding is provided by the Community budget (more specifically, the
scheme is co-funded by the EU and member states) only to active labour
market policies. So far, the Fund seems to have been rather effective for
those workers who have had access to the measures financed by it (some
70% of the 10,000 workers involved in 2008 have been re-employed), but it
has on the whole delivered very little: out of €500 million available every
year, only less than €50 million were distributed in 2008, owing to the lack
of requests and the slowness of the procedures. In June 2009, the Fund
Regulation was changed in order to make it a tool to counteract the
economic crisis, thereby lowering the threshold of layoffs necessary to
qualify (from 1,000 to 500), raising the share of co-funding on the part of the
EU (from 50% to 65%), extending the period for which the funding is
granted (from 12 to 24 months) and broadening the range of its
applicability to crisis-related mass layoffs.
See for instance, discussions published in various issues of the Journal of European
Social Policy in 2001, with Philippe Schmitter & Michael Bauer’s (2001a) proposed
‘Euro-stipendium’, the ensuing criticism by Philippe Van Parijs & Yannick
Vanderborght (2001), as well as by Manos Matsaganis (2001), with a rejoinder by
Schmitter & Bauer (2001b).
6
42 | FERRERA & SACCHI
It is to be hoped that these changes will be accompanied by a
quantum leap in the communication strategy of the European Globalisation
Adjustment Fund, as until now this strategy has been virtually nonexistent. The result is that over 70% of Europeans, when interviewed,
declare they have never heard or read anything about it (Eurobarometer,
2009). This is in stark contrast to the strategy of massively publicising the
European Social Fund, which is administered through national and
regional authorities, while the European Globalisation Adjustment Fund,
being directly administered by the EU, could be an important source of
legitimacy for the Union as a political entity in its own right. Still, if the
European Globalisation Adjustment Fund is simply there to co-finance
existing national measures for which full credit is claimed by member
states, the legitimacy return for the EU runs the risk of being negligible, if
not outright negative (as would be the case if an application by a member
state were to be rejected by the Community).
Be that as it may, in addition to important – in substantive and
symbolic terms – but rather small-scale initiatives, what really matters at
this stage is the forging of a consensus around a general concept: that of
putting in place a basket of basic common social standards applicable to the
entire EU space, as well as setting up the regulatory and governance
prerequisites for the mutual recognition of social policy and employment
regimes across member states. Without shared requirements and reciprocal
trust, mutual recognition is impossible, and this is all the more important
now, since the economic crisis has sparked a return to domestic, nationspecific interventions in the social field.
Drawing, once again, inspiration from the history of modern
citizenship, a new regulatory and governance regime for the EU’s freedom
of movement legislation should be interwoven with a more basic
institutional fabric: Fundamental Rights, as set out in the Nice Charter. In a
way, the fact that the Charter is deemed to have the same legal value as the
treaties can be seen as another form of ‘mutual recognition’ on a symbolic
level. While member states reaffirm – in the Treaty of Lisbon – their
acceptance of the EU’s freedom of movement and competition regime, the
Charter is the tool through which the EU acknowledges the supremacy of
rights and their centrality in the EU’s construct and mission, while
accepting that member states may have their own legal proclivities
concerning social citizenship, which are part of the basic EU constitutional
order.
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 43
That the Charter has been given full legal status is an immensely
valuable fact, since it will allow the ECJ to take fundamental social rights
into account in its rulings, and thereby enable it to play its role in terms of
constitutional balancing. One may regret the fact that this is merely recalled
in the Treaty of Lisbon, however understandable it may be in light of
British and Polish opposition. Symbols can go a long way in politics. A
charter of rights that is swept under the carpet does not exactly fit the bill.
4.
Less rhetoric, more forward-looking initiatives
Let us now briefly turn from common to similar challenges. Here, as
mentioned above, there is less need and scope for direct and ‘hard’
supranational activism, but the EU can still play a significant role in
encouraging and facilitating the modernisation of national social models,
primarily in the context of existing demographic challenges. To a large
extent, this is already happening through a set of instruments, most notably
the Open Method of Coordination (OMC) and its various social processes.
One of the latest institutional innovations on this front has been the
adoption, by the European Council, of a number of solemn ‘pacts’, in which
member states have committed to achieving shared goals and
strengthening cooperation in the field of youth policies and youth
mainstreaming (2005), equal opportunities and work-life balance (2006),
and family policy (2007).
Even though there has been some disappointment regarding the
effectiveness of these ‘soft’ instruments for the joint management of
challenges of this ilk, they do provide valuable institutional capital on
which to build, and their performance to date has been rather good,
assuming one relinquishes the perfectionist, classic Community method
angle.7
Without entering into the technical debate about how to fine-tune soft
coordination from both a substantive and procedural viewpoint, some
general suggestions come to mind for the purpose of stimulating debate
and further thinking on this issue.
The most thorough empirical assessment of social OMC processes so far is to be
found in various chapters of Zeitlin & Pochet (2005) and Heidenreich & Zeitlin
(2009), in particular in Jonathan Zeitlin’s conclusions to both volumes.
7
44 | FERRERA & SACCHI
The first two suggestions regard the OMC processes:
•
Incorporating into the draft of the Integrated Guidelines for National
Reform Programme, alongside macroeconomic, microeconomic and
employment guidelines, a social chapter, so as to induce both
Community and national policy-makers to take all angles into
account;8 and
•
Introducing some ‘OMC+’, i.e. coordination processes supplemented
with tangible and financial incentives. This is already at least partially
happening with both the employment and the inclusion processes,
but more could be done, especially as regards training and lifelong
learning, child poverty and childcare in general.
A third suggestion regards the new ‘pacting’ approach that seems to
be taking root alongside (or in anticipation of) more structured forms of
open coordination. If properly designed, properly communicated and
properly implemented, pacts and/or alliances centred around similar social
challenges confronting all or most member states can indeed play a
significant role and contribute to the strengthening of a social EU.
Assessing the actual implementation of such initiatives is premature, as
most were only launched in the past few years. But to date their design and
the way in which they have been communicated to the public at large have
been extremely poor. The initiative on the European Alliance for Families, a
platform for exchanging information and experience on family-friendly
policies received only a cursory description in the Presidency Conclusions
of the 2007 Spring European Council Meeting and was not supported by
any recognisable (let alone effective) communication campaign (but there
is, however, a dedicated website).9 This risks rapidly eroding the promising
An attempt by some member states, the European Commission and the European
Parliament to include some ‘social’ objective in the Lisbon Strategy for Growth and
Jobs turned out to be unsuccessful, due to the opposition of many member states.
The only change so far has been that the member states are expected to refer to the
flexicurity principles elaborated by the Commission when drafting their National
Reform Programmes 2008-10.
8
In May 2009, an Employment Summit was held with the participation of national
ministers, which confirmed the commitment to mobilise all EU funds and
institutions to boost employment and social inclusion in the light of the financial
crisis. Again, however, the Summit was not accompanied by any effective
communication campaign.
9
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 45
potential of such instruments or, worse still, turning them into yet another
signal of the EU’s superficiality, opportunism and mere rhetoric in all
matters that have to do with welfare and social policy. Why not take these
instruments more seriously and re-configure them into a single “Pact for a
New Social Europe”, that could serve as a general symbolic and
institutional framework for all OMCs? If this scenario does not prove
feasible, then it might indeed be advisable to renounce all further
proliferation of pacts and alliances, in order to avoid overload, confusion
and the possible loss of legitimacy in this field (the EU’s ‘caring’
dimension) – a field that should generate, rather than erode, EU legitimacy.
The fourth and final suggestion is that of considering the launch of a
new policy initiative at the supranational level, with a strong ‘signalling’
potential on the three fronts mentioned at the beginning of this chapter:
justice, legitimacy and efficiency. The most promising move in this
direction would be one geared towards young Europeans. As we have
seen, the EU already has a youth agenda, but it should consider taking
specific action, and implement ground-breaking measures. Drawing on a
paper prepared by the Bureau of European Policy Advisers to the President
of the Commission on “Investing in Youth” (Barrington-Leach et al., 2007),
a number of innovative measures with a high legitimising potential and the
ability to reconcile social justice and economic efficiency could be
considered for direct Community action. This might involve a ‘European
capital grant’ to all children, that is a universal grant awarded to every
baby at birth, which could be topped up (to a certain level) by parents and
made available for use when the child reaches the age of 18; or a ‘European
Early Childcare Fund’; or a European student loan scheme, which could be
made available through the European Investment Bank.
One rather alarming indication stemming from the latest
Eurobarometer polls is that there is a widespread belief among all
respondents that young people’s life chances will be worse than those of
their parents (Eurobarometer, 2007b). In the summer of 2009, almost half of
respondents expressed strong concern about the prospect of their children
losing their jobs in the wake of the recession (Eurobarometer, 2009). A
stronger social EU should see to it that this does not happen: investing in
youth should indeed become its flagship cause, its leading and most clearly
recognisable priority.
46 | FERRERA & SACCHI
References
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youth: an empowerment strategy, Bureau of Economic Policy Advisers,
Brussels.
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Eurobarometer (2007a), Standard Eurobarometer 65, January.
Eurobarometer (2007b), Special Eurobarometer 273, European social reality,
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Eurobarometer (2007c), Standard Eurobarometer 66, September.
Eurobarometer (2008a), Flash Eurobarometer 227, Expectations of European
citizens regarding the social reality in 20 years’ time.
Eurobarometer (2008b), Standard Eurobarometer 70, October.
Eurobarometer (2009), Special Eurobarometr 316, European Employment and
Social Policy, July.
Ferrera, M. (2005), The Boundaries of Welfare. European Integration and the
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Ferrera, M. (2009), “The JCMS Annual Lecture: National Welfare States and
European Integration: in Search of a Virtuous Nesting”, Journal of
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Gilpin, R. (1987), The political economy of international relations, Princeton, NJ:
Princeton University Press.
Giubboni, S. (2003), Diritti sociali e mercato. La dimensione sociale
dell’integrazione europea, Bologna: Il Mulino.
Heidenreich, M. and J. Zeitlin (eds) (2009), Changing European Employment
and Welfare Regimes, London: Routledge.
Lyon-Caen, G. (1992), “L’infiltration du Droit du travail par le Droit de la
concurrence”, in Droit Ouvrier, pp. 313-359.
Marshall, T.H. (1950), Citizenship and social class and other essays, Cambridge:
Cambridge University Press.
Matsaganis, M. (2001), “The Trouble with the Euro-Stipendium”, Journal of
European Social Policy, Vol. 11, No. 4, pp. 346-348.
Milward, A. (1992), The European Rescue of the Nation-State, London:
Routledge.
A MORE SOCIAL EU: ISSUES OF WHERE AND HOW | 47
Scharpf, F. (2009), “Legitimacy in the Multi-level European Polity”,
European Political Science Review, Vol. 1, No. 2, pp. 173-204.
Schmitter, P. and M. Bauer (2001a), “A (Modest) Proposal for Expanding
Social Citizenship in the European Union”, Journal of European Social
Policy, Vol. 11, No. 1, pp. 55-65.
Schmitter, P. and M. Bauer (2001b), “Dividend, Birth-Grant or Stipendium?
– A Reply”, Journal of European Social Policy, Vol. 11, No. 4, pp. 348352.
Sinn, H.W. (1995), “A Theory of the Welfare State”, The Scandinavian Journal
of Economics, Vol. 97, No. 4, pp. 495-526.
Van Parijs, Ph. and Y. Vanderborght (2001), “From Euro-Stipendium to
Euro-Dividend”, Journal of European Social Policy, Vol. 11, No. 4, pp.
342-346.
Weiler, J.H.H. (1999), The Constitution of Europe, Cambridge: Cambridge
University Press.
Zeitlin, J. and P. Pochet (eds) (2005), The Open Method of Co-ordination in
Action, Brussels: Peter Lang.
4. ECONOMIC POLICY COORDINATION
AND FAILURES IN EUROPE TO COUNTER
RECESSION
FIORELLA KOSTORIS*
I had too often observed the limits of coordination. It is a method which promotes
discussion, but it does not lead to a decision. It does not allow us to transform the relations
between human beings and between countries when union is necessary. It is the expression
of the national power, as it is; it cannot change it, it will never create unity.
J. Monnet, Mémoires, Vol. I, 1976
Introduction
Economic policy coordination is not a clear-cut concept. This chapter first
examines the different kinds of economic policies that are currently
considered subject to coordination pursuant to Article 99 of the European
Treaties and those which, according to the subsidiarity principle, should be
common policies, being the exclusive competence of the Union, or should
be coordinated between member states, being shared competences.
Secondly, it shows under which conditions economic policy coordination is
strong or weak, using the Stability and Growth Pact as a specific case study.
It then analyses the implications of these general conclusions in order to
show whether economic policy coordination in the EU is able to meet the
challenges of the current recession. It concludes that European monetary
policy – a common action in the single currency zone – is well-suited to
Two previous versions of this paper were presented respectively in Berlin, at a
seminar at the Freie Universität in May 2009, and in London, at a breakfast speech
at the Business Club Italia in July 2009. The author is grateful to the participants of
those meetings for their stimulating comments and questions.
*
48 |
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 49
addressing the systemic negative demand shock we see now. But European
fiscal policy coordination is inadequate, because its basic instrument, the
Stability and Growth Pact, is ill-conceived and needs urgent reform. The
coordination of financial policies also needs to be much improved.
1.
When is coordination appropriate?
Economic policy coordination within the European Union has increasingly
come to be considered as useful, if not necessary, in debates among experts
and in the public mind. Economic policy coordination has always been
considered favourably in the European Treaties. Article 99 of the Treaties
states that member states’ policies are all “a matter of common concern”
and are coordinated “within the Council”. The same formula is repeated in
the unapproved draft of the Treaty Establishing a Constitution for Europe and
in the newly approved Lisbon Treaty. In particular, European federalists,
who support the political union of the Community and think the best way
to achieve it is by acting through Parliament from an institutional
perspective, and through the single market/single currency from an
economic viewpoint, complain that many Council decisions must be taken
unanimously. Unanimity is of course difficult to reach so coordination is
sometimes impossible.
But this fact need not affect the well-being of Europe. For instance, in
setting tax rates, if unanimous coordination is reached, the outcome is
worse than without it because, in the absence of unanimity, competition
prevails. If it is not implemented in an incorrect and illegal way,
competition is better than harmonisation, which would imply tax rates at
an intermediate level between the minimum and the maximum in Europe,
while the minimum rates, consistent with given public expenditure goals
(themselves related to market failures), would be obtained by competition.
The latter does not meet with the favour of member states, as they
prefer spending to please their electorate, whether they have to do it for
rational economic reasons or not. Thus, it is no coincidence that, among the
12 points of the Global Legal Standard OECD (2009) paper approved at the
2009 G8 L’Aquila Summit, there is one inhibiting any ‘race to the bottom’ in
labour markets or in social and environmental standards, while
international agreements are longed for. In fact, this formula hides a sort of
protectionism favouring residents versus immigrants, insiders versus
outsiders, national rather than foreign investments. It limits incentives to
attract both capital from abroad – as, for example in Ireland with
50 | FIORELLA KOSTORIS
detaxations – and workers from other European countries or from
marginalised parts of the society – by adopting mutual recognition and
country of origin principles, or by offering lower wages and potentially
smaller welfare provisions, which might nonetheless be desirable as they
are better than unemployment subsidies.
As a consequence, competition is often labelled as ‘unfair’ or ‘wild’
without explanation. It is so described in spite of the fact that the condition
of voluntary exchange holds true, no law is evaded and no objective moral
principle (as in the 10 commandments) is violated. True, the level playing
field between different European member states or between different
components of social systems is missing, but the essence of competition is
precisely to use those differences to the advantage of the most efficient
agents, inducing the others to find counterbalancing, compensating factors,
able to reduce their weaknesses, while favouring the well-being of all.
Economic policy coordination, in the current European jargon, is an
‘umbrella concept’ being applied to a very wide range of interventions. It
ranges from the exchange of information (sometimes partial, as has been
the case up to now in banking supervision), to multilateral monitoring on
the basis of commonly recognised best practices (as in the Lisbon Agenda).
It may concern agreed principles of a philosophical nature (such as those
on ethics and economics, as illustrated at the 2009 G8 Summit of L’Aquila
by the Global Legal Standard, echoing Benedict XVI’s Encyclical Letter
Caritas in veritate on matters like CEOs’ bonuses, which should be
sustainable and consistent with an appropriate degree of risk aversion).
It further concerns more practical principles expounded in proposals
regarding European institutions, for example those on Eurobonds supplied
by the EIB, tending to finance the TransEuropean Networks managed by
the EBRD. Conversely, economic policy coordination may become slightly
more factual when it is the expression of agreed intentions regarding the
management at member state level of some macro policy, such as the stillnational stabilisation actions (for example, the Council Decision of 11-12
December 2008, in line with the Commission Communication of 26
November 2008, defines the European Recovery Plan with its major
budgetary impetus worth 1.5% of GDP – about €200 billion – 1.2% of which
is provided by member states; but those are mere intentions, because EU
countries may avoid any intervention consistent with that Decision, as
indeed happened according to the OECD and the IMF estimates).
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 51
Finally, economic policy coordination ranges from co-decided rules
for fiscal deficits (as in the Stability and Growth Pact), or, more recently, for
financial policies (as in the Euro Action Plan of 12 October 2008), to truly
common actions (as is the case with monetary and competition policies).
The aim of this chapter is not to describe all these policies in detail, but
rather to identify under what circumstances European coordination is
strong and effective. Referring to the latter, the distinctions usually made
are related to the degree of rigidity observed in the corresponding
regulation, established by primary or secondary norms. For example, the
Lisbon Agenda and the open coordination method of a qualitative nature
are generally thought to be weak, while the Stability and Growth Pact and
its numerical rules are supposed to be ‘hard’ forms of coordination. It
might be said that they are both weak, perhaps not equally weak, as in this
respect the fundamental difference in European policies is between those
that are realised by the Council and those that are managed by the
Commission or by some other European technical institution, like the
European Central Bank or the European Court of Justice; this distinction
being based on the subsidiarity principle.
When externalities beyond national borders are large and require a
higher level of government capable of activating a policy, there is the
necessity of a supranational intervention and the exclusive competence of
the European Union leads to a truly common policy, which is not managed
by the Council. When cross-border spillovers or redistributive purposes at
the Community level are limited, the national public intervention is shared
with the Union and policies are merely coordinated by the Council. Finally,
in the absence of any significant cross-border externality, competences are
exclusive to member states, remain local and presumably uncoordinated.
The Council responds to national, not to European interests, as it is
composed of national policy-makers subject to the tyranny of democracy:
in a European perspective, coordinated policies are weak. Conversely, the
Commission, the European Central Bank, or any other European institution
managing a common policy, are technical authorities that do not have to be
chosen equally by voters and are independent from the executive power.
Their governing board being protected by the democratic deficit, common
policies are much stronger as a result.
Two examples of this are worth examining: monetary and
competition policies, which seem to be pretty effective, even under the
present critical economic circumstances.
52 | FIORELLA KOSTORIS
Monetary policy, since the birth of the euro in 1999, has been able to
keep inflation under control, thus establishing the reputation of the ECB.
During the whole recent financial crisis, expansionary monetary policy has
performed brilliantly in the eurozone. It has alleviated both euro and noneuro countries’ cyclical downturns, particularly in the second half of 2008
and in the current year. The ECB has been capable of reducing the recession
effects and sustaining economic activity by massively increasing banks’
liquidity in the eurozone, reducing discount rates, lengthening from 6 to 12
months the duration of banks’ refinancing at fixed rates and for unlimited
amounts and inventing new bank funding formulas, particularly through
covered bonds (debt securities issued by them and backed by mortgages).
Competition policy, since the Rome Treaty, has been a fundamental
pillar of the construction of Europe. By preventing abuses of dominant
positions in the Single Market and state aid distortions, the Commission
has been operating as an antitrust authority. Some of the Commission’s
recent actions monitoring competition have been much criticised but in fact
have turned out to be flexible and rather intelligent. For example, in
September-October 2008, Ireland appeared to violate the European rules on
state aid by guaranteeing banks’ debt issuance. The Commission did not
intervene here and rightly so, since, immediately after Ireland, Greece
passed the same policy and a few days later other member states also
followed suit. This was certainly easy to forecast, as there is full
competition in capital markets and banking, current accounts can quickly
be transferred to other eurozone member states. Finally, on 12 October
2008, a European Summit decided to adopt the same policy of guaranteeing
bank debt for the whole Union. In the end, therefore, the Commission was
extremely effective in not sanctioning Ireland and Greece for distortionary
state aid policies, knowing that competition would achieve the same
outcome as its regulatory interventions.
2.
Economic policy coordination under pressure
Exclusive EU competences are logically derived from the subsidiarity
principle appearing in the Union primary norms, and are pragmatically
defined by the European Treaties as well. There is some inconsistency
between the principles and their practical application, but neither the
former nor the latter can be easily redetermined and so for the time being
have to be considered as a given.
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 53
As indicated above, other competences, listed equally in the treaties
with some analytical inconsistency, are shared between the Union and
member states and the corresponding policies have to be coordinated by
the Council. The idea that this institution is always a source of weak
coordination finds an exception when all member states have a common
identical interest and decide to pursue their goals with a unanimous, codecided intervention. In this case, ex ante coordination is not necessary,
while ex post coordination is easy and sufficient, or, to put it another way,
ex ante rules become self-enforcing.
A typical example of this condition is what happened over the
weekend of 12 October 2008. The world’s stock exchanges were fearing
extreme volatility after September 15th when Lehman Brothers filed for
bankruptcy, but in a matter of hours European countries managed to find a
new governance formula to address their problems, namely an Ecofin
Summit consisting not of finance ministers but heads of state and
governments, for the occasion enlarged to include the British (eurosceptic)
Prime Minister Gordon Brown. They agreed on three major solutions: state
guarantees of bank debt issuance; banks’ recapitalisation and governments’
commitments to avoid their bankruptcy by buying, if necessary, all their
assets; and transitory abandonment of the market-to-market formula, in
order to strengthen the trust message of the first two initiatives,
considering that this kind of transparent evaluation may lead to confusion
between short-term liquidity and long-term solvency. The successful
political outcome was certainly facilitated by the dramatic context of the
European partners’ meeting. As indicated by the Italian Minister of
Finance, Giulio Tremonti (Sensini, 2009):
At the IMF in Washington, on October 9, which was Friday, we
understood that the London Stock Exchange could not open on the
following Monday. During the night of May 9 Iceland declared
bankruptcy. The turning point came on October 12 in Paris, when
Governments and Politics took the right initiative.
But this rapid and efficient ex post coordination would have been
impossible had each member state not had the same interest to back bank
debts and boost market confidence in a unanimously coordinated way, all
being well aware not only of the risk of contagion, but also of the threat
represented by other European partners potentially able to provide even
bigger bailouts to their banks.
54 | FIORELLA KOSTORIS
3.
A case study of the Stability and Growth Pace
In more ‘normal’ circumstances, Council coordination is generally mild,
irrespective of what might be suggested by hard regulations. Moreover, it
becomes even weaker the more ill-conceived is the governance of the
institutions that have the duty to control the stakeholders’ behaviour
involved in coordination. The less effective are sanctions and incentives
directed to those agents, the more mistaken are the intrinsic rules of the
coordinated policy.
The Stability and Growth Pact can be taken as a case study to show
the importance of these three elements. The rigidity of the Pact’s rules are
well-known, from the famous ceilings of 3% in the deficit-to-GDP ratio and
60% in the debt-to-GDP ratio (Article 104 of the Treaties), to the two 1977
Regulations shedding light on four further aspects (medium-term
objectives, derogations to the excessive deficit procedures, mitigating
factors to start the early warning procedure and sanctions), concluding
with the 2005 Pact reform. Derogations, as reformulated in 2005 by two
new Regulations, are particularly relevant in the current economic crisis:
the excessive deficit procedure does not start if there are ‘exceptional’
economic conditions, such as when the annual GDP growth rate is negative
or the output gap relative to the potential level is persistent, while the
distance of the deficit-to-GDP ratio from the reference value is temporary
and small.
To analyse the first of the three relevant aspects, it should be noted
that the governance of the Pact is ill-conceived, mainly because the decision
on whether a country is a fiscal delinquent is assigned to other, at least
potentially, fiscal delinquents. Indeed, supervised finance ministers
coincide with the supervisors and – in Juvenal’s words – who shall guard
the guards themselves? Such conflicts of interest seemed to arise in
November 2003, when the Commission wanted to start an excessive deficit
procedure against France and Germany, abundantly exceeding the 3%
ceiling, while the Council decided not to intervene, probably influenced by
the Ecofin President of that semester, Giulio Tremonti. Presumably a sort of
implicit ‘do ut des’ (reciprocity) was implemented, exchanging a current
favour towards Paris and Berlin for a future favour towards Rome. In fact,
Italy received an early warning on its excessive deficit only in July 2005,
while in four out of the five years since 2001 its deficit had exceeded 3%.
As for the sanctions system, it proved even less effective after the
European Court of Justice’s Solomonic ruling of July 2004 on the above-
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 55
mentioned 2003 controversy: on the one side, it agreed with the Council
against the Commission but, on the other, it asked the Council to revise its
Decision, considering it to be inconsistent with its previous ones. The
reputation and credibility of the Pact have consequently been diminished
because, admittedly, it appeared to be strictly applied to small countries
and freely interpreted for large, powerful ones, thus lessening the moral
weight of any sanction. Besides, the probability of sanctions decreases as
the actual number of fiscal delinquents increases, as is happening at the
moment. Finally, incentives to behave well from a deficit and debt
viewpoint are correctly identified by the Maastricht Treaty in the
convergence phase, as the member states’ ability to satisfy convergence
parameters is rewarded by entry into the Eurogroup, offering many gains
in terms of nominal stability. On the contrary, once a country is in the club,
the latter becomes non-inclusive in the sense that the treaties do not
provide any rule to exclude a fiscal delinquent from the club, and the carrot
of entering the euro area has already been eaten, while the stick of
exclusion is substituted by unlikely and ineffective sanctions.
Third, the formula of the Pact is ill-conceived. To resume its basic
rationale, described in the 1989 Delors Report, two underlying hypotheses
can be recalled. First, member states’ fiscal policies create small crossborder spillovers, not requiring common action but only some European
coordination. While this assumption does not seem to be disproved by the
empirical evidence, the second is factually more controversial. Accordingly,
national fiscal policy spillovers are negative because, within a group of
countries sharing the same currency, each member state hit by an
asymmetric shock does not take into account the effects of its expansionary
fiscal policy on the common reference interest rate. This creates a deficit
spending bias, which is opposed by the European Central Bank. The latter
ultimately succeeds in targeting European inflation, but this action raises
interest rates and brings no advantage to anybody: it is therefore better to
agree on an ex ante maximum deficit, avoiding free-riding problems.
A very simple mathematical model (presented in the Annex) conveys
this message. It shows, however, not only the Delors Report rationale for
the Stability and Growth Pact, but also its weaknesses. In particular, it
clearly indicates that an optimal ex ante fiscal policy coordination in the
Eurogroup cannot be set if three distinctions are missing: between demand
and supply shocks and between weak and strong demand shocks; between
asymmetric and systemic shocks.
56 | FIORELLA KOSTORIS
Indeed, in the optimal solution, the 3% constraint appears to be too
large when facing a negative supply shock – when essentially no deficit
spending should be allowed. It may be correct, when facing a mild
asymmetric negative demand shock, i.e. when automatic stabilisers are
sufficient to restore output at the potential, but it is finally suboptimal
when there is a strong and/or a systemic negative demand shock, hence a
discretionary expansionary fiscal policy is called for, beyond automatic
stabilisers. The coordination failure in fiscal policy is particularly absurd
when there is a systemic demand shock, because each country is then
positively, not negatively affected by the budgetary stimulus of other
partners. A good proposal would therefore consist of a further reform
under the Stability and Growth Pact, whereby the Commission and the
Council should take into consideration whether a country faces a supply or
a demand shock (strong or mild) and a common-systemic shock or an
asymmetric one.
In order to make this proposal operational, one should avoid impossible
changes to the Treaty. One should therefore amend the present formulation
of the Pact either through a different informal interpretation of the
‘exceptional’ economic conditions inducing derogations to the excessive
deficit procedures and/or through an innovative formal concept of
‘exceptionality’, defined by a new Council Regulation. Moreover, from a
political viewpoint, a double question immediately arises. How hard is it
for the European Commission and the Council to identify the nature of the
country-specific (or of the systemic) shock? And is it possible to adopt a
common methodology and harmonised European data to detect this in
every member state?
Three data sets are currently available in the Union for the guardians
of the Stability and Growth Pact, which have already been homogenised by
the European Commission Services for all EU27 countries, and have existed
for many years, though they have not been much exploited. They allow the
quick supply (although still discretionary) of measures on qualitative and
quantitative aspects of economic cycles. A negative demand shock can then
be identified by the simultaneity of the increase in the unemployment rate,
combined with the decrease in the inflation rate, while, on the contrary, a
negative supply shock is characterised by rising inflation coupled with
growing unemployment. In addition, a negative demand shock is identified
as strong, if the inverse correlation between unemployment and inflation is
accompanied by a percentage of firms declaring problems with insufficient
demand rather than insufficient profitability above the normal trend. The
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 57
strongly negative demand shock has to be considered systemic or common
to all countries belonging to the same area, if each of them shows the same
three features simultaneously. In Table 1 and Figure 1 below (with annual
frequences except for the last quarters), a strong demand shock is detected
when there is a contemporaneous upward movement in (u), a downward
movement in (π) and (D-C)/Average (D-C 1997-2008) > 10 (it should be
bigger than 1, but the variable is multiplied by 10, so as to make the graph
more easily readable).
Looking at Table 1 and Figure 1, it is immediately apparent that we
are living in the middle of a severe economic crisis. By mid-2009, firms
were constrained in their demand 50% more than in the average trend of
the previous 12 years, particularly in the eurozone. In the last 3-4 quarters
and in the current year, unemployment is increasing and inflation is
declining everywhere in the EU27. Starting with the second half of 2008, we
observe not only that the cyclical downturn is larger than those emerging in
other critical years of the period under consideration (1997-2009), but also
that this strongly negative demand shock is, for the first time, common to
all European countries. Germany, France and Italy are now all suffering
from the same disease. This was not the case in 2002-03, when a countryspecific shock hit some of the member states: the three combined
quantitative indicators, used in Table 1, suggest that in those years
Germany was the only big partner to bear a strongly negative demand
shock, unlike Italy and France. In its most critical years, the latter was
affected by a strongly negative supply shock. No doubt, if the Commission
had adopted the distinction between demand and supply shocks, it would
not have requested the early warning procedure against Germany, thereby
separating the destinies of Paris and Berlin. Perhaps a joint viewpoint
between the Commission and the Council could have been reached then,
without damaging the reputation of the Stability and Growth Pact.
58 | FIORELLA KOSTORIS
Table 1. Detrended demand-constrained (D) relative to capacity-constrained (C) business regime, unemployment and inflation
rates in some European areas (1997-2009)
Years
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2007-Q1
2007-Q2
2007-Q3
2007-Q4
2008
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009
2009-Q1
2009-Q2
Euro Area
(D-C)/
Average
(D-C 19972008) (x 10)1
14.3
11.7
12.9
7.6
10.4
13.6
14.1
9.7
9.9
6.2
3.3
3.0
3.2
3.1
3.8
6.2
3.5
4.8
6.7
9.4
14.4
13.5
15.2
u (%):
Unemployment
rate2
10.6
10.0
9.1
8.5
8.0
8.4
8.8
9.0
9.0
8.3
7.5
7.7
7.5
7.4
7.3
7.5
7.2
7.4
7.6
8.0
9.9
8.7
9.2
π (%):
Inflation
rate3
Germany
(D-C)/ Average
(D-C 1997-2008)
(x 10)1
1.6
1.1
1.1
2.1
2.3
2.2
2.1
2.1
2.2
2.2
2.1
1.9
1.9
1.9
2.9
3.3
3.4
3.6
3.8
2.3
0.4
1.0
0.6
16.2
11.5
10.9
4.2
6.9
12.1
14.3
9.9
10.9
8.7
7.4
10.0
9.3
5.7
5.0
7.0
5.1
4.1
6.7
11.3
14.5
13.6
15.4
u (%):
Unemployment
rate2
9.9
9.3
8.5
7.5
7.6
8.4
9.3
9.8
10.6
9.8
8.4
8.7
8.5
8.3
8.0
7.3
7.6
7.4
7.2
7.1
8.6
7.4
π (%):
Inflation
rate3
1.5
0.6
0.6
1.4
1.9
1.4
1.0
1.8
1.9
1.8
2.3
1.9
2.0
2.0
3.0
2.8
3.1
3.0
3.3
1.6
0.3
0.8
France
(D-C)/
Average
(D-C 19972008) (x 10)1
16.2
11.5
10.9
4.2
6.9
12.1
14.3
9.9
10.9
8.7
7.4
6.7
6.2
3.8
3.4
7.0
3.4
2.7
4.5
7.6
14.5
9.1
10.4
u (%):
Unemployment
rate2
11.5
11.1
10.5
9.0
8.3
8.6
9.0
9.2
9.3
9.2
8.3
8.7
8.7
8.2
7.8
7.8
7.6
7.7
7.8
8.2
9.6
8.6
π (%):
Inflation
rate3
1.3
0.7
0.6
1.8
1.8
1.9
2.2
2.3
1.9
1.9
1.6
1.3
1.3
1.4
2.5
3.2
3.3
3.7
3.6
2-0
0.2
1.5
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 59
Years
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2007-Q1
2007-Q2
2007-Q3
2007-Q4
2008
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009
2009-Q1
2009-Q2
Italy
(D-C)/ Average
(D-C 1997-2008)
(x 10)1
11.3
10.8
11.8
8.1
9.7
11.1
12.7
10.0
10.0
7.3
7.2
5.5
5.8
8.6
8.8
10.0
8.9
9.7
10.1
11.4
13.9
14.0
13.8
u (%):
Unemployment
rate2
11.3
11.3
11.0
10.1
9.1
8.6
8.4
8.0
7.7
6.8
6.2
6.1
6.1
6.2
6.3
6.8
6.6
6.7
6.9
7.0
8.8
π (%): Inflation
rate3
1.9
2.0
1.7
2.6
2.3
2.6
2.8
2.3
2.2
2.2
2.0
2.0
1.9
1.7
2.6
3.5
3.3
3.8
4.0
2.9
0.8
European Union
(D-C)/ Average
(D-C 1997-2008)
(x 10)1
12.9
10.8
12.7
8.8
10.6
13.2
13.6
9.5
9.4
7.2
4.5
4.4
4.3
4.0
5.1
6.9
4.7
5.8
7.3
9.6
13.6
12.8
14.4
u (%):
Unemployment
rate2
9.8
9.4
9.1
8.6
8.4
8.8
9.0
9,0
8.9
8.2
7.1
7.4
7.2
7.1
6.9
7.0
6.8
6.8
7.0
7.4
9.4
8.1
π (%): Inflation
rate3
1.7
1.3
1.2
1.9
2.2
2.1
2.0
2.0
2.2
2.2
2.4
2.2
2.2
2.1
3.0
3.7
3.5
3.9
4.3
2.9
0.9
1.5
Note: Both numerator and denominator are given in detrended terms.
Sources: (1): Elaboration on Business Survey Data. Empirical evidence on 2009-Q2 is based on April data. (2): Eurostat data up to 2009. The 2009 annual data are
provided by the European Commission in European Economy, Economic Forecasts, May 2009. The 2009-Q2 data, if data are available at least one month in the
quarter, correspond to the latest observed. Eurostat data are integrated with information on the eurozone derived from Banca d’Italia, Bollettino Economico, n. 56,
April 2009 and information on the EU27 coming from the Bureau of Labour Statistics, Unemployment Rates in the European Union and Selected Member States 19952009. (3): Eurostat data up to 2009. The 2009 annual data are provided by the European Commission in European Economy, Economic Forecasts, May 2009. The
2009-Q2 data are based on April data provided by the European Central Bank.
60 | FIORELLA KOSTORIS
Figure 1. Indicators of demand shocks in the euro area, 1997-2009-Q2
(Quarterly data since 2007)
16,0
14,0
(D-C)/Average (D-C
1997-2008) Detrended
demand-constrained (D)
relative to capacityconstrained (C) business
regime (x 10)
u (%): Unemployment rate
12,0
10,0
8,0
6,0
4,0
π (%): Inflation rate
2,0
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
20 06
07
20 Q1
07
20 Q2
07
20 -Q3
07
20 Q4
08
20 Q1
08
20 Q2
08
20 -Q3
08
20 Q4
09
20 Q1
09
-Q
2
0,0
Years
Sources: See Table 1.
4.
Effects of the financial crisis
The origin of the present crisis in the real economy is elsewhere in the
financial sector, when it started in summer 2007 with the bursting of the
speculative bubble in the American housing market and the difficulties in
debt repayment on subprime mortgages. The securitisation of these assets,
made in complex and opaque ways, later induced a general diffusion of
partly unobservable risks, with a consequent loss of confidence in the
financial markets. Due to the globalisation of capital markets, the derived
lack of liquidity and credit crunch reached all stock exchanges, from Wall
Street to London, from Japan to Brazil. The existence of leads and lags
explains why the real economy was hit approximately a year later. And it
also explains why unemployment will keep rising even when GDP starts to
recover, although it did not deteriorate immediately after the beginning of
the cyclical downturn. Indeed this phenomenon is already being tested in
some countries, like France and Germany, where the recession would seem
to be at an end by the second quarter of 2009 and yet labour market
performances are still worsening, even though they were improving up to
the second semester of 2008 when a fall in output was starting to emerge.
In developed countries, the aggregate demand contraction observed
since mid-2008 stems from a decrease in the incomes of firms and
households, from a decline in confidence and from a credit crunch, with a
consequent contraction in funding for the purchase of durables and nondurables and a delay in investment decisions. The fact that this happens at
the same time in Europe and in the United States – which constitute major
consumer markets for each other – means that foreign demand is also
adversely affected. On the other hand, the fall in world trade leads to a
cyclical worsening in BRIC and other developing countries, while OPEC is
also suffering from the extreme volatility in oil prices. Everywhere, the
recession in the real economy is caused by a systemic, strongly negative
demand shock.
Focusing more on Europe, the recession began in the second quarter
of 2008 in Germany and Italy, but later in other major countries like Spain,
the United Kingdom and France. Indeed, on average, the euro and the EU
economic systems started to observe a recession only in the third quarter of
last year and the severity of the slowdown appeared particularly worrying
after 15 September 2008. Not only was 2007 still a boom period for the
whole Union, but even the GDP growth in 2008 remained positive in the
| 61
62 | FIORELLA KOSTORIS
vast majority of member states (the notable exceptions being Italy and
Ireland), in spite of the fact that all European countries have experienced a
recession since the second semester of last year. In some cases, the 2008
GDP dynamics seem remarkable (1.3% in Germany – slightly bigger than in
the US, 0.7% in France, 0.8% and 0.9%, in the eurozone and in the EU).
Forecasts for 2009, however, are worrying, despite clearly improving
performances in large European countries since the second quarter of this
year: estimates for 2009 growth are -3% in France, -4.4% in Italy, -5.4% in
Germany, -4% both in the euro area and in the Union, also due to the very
poor prospects of the Spanish and British economies. On the contrary,
expectations for 2010 are generally positive. Looking ahead, it is to be
hoped that the recession in the Union will only last 12-18 months, implying
a much smaller cumulative GDP decrease than during the Great
Depression, of a size similar to that measured during the first oil shock of
1973-74, the latter being, however, of a totally different nature (an
asymmetric, strongly negative supply shock).
The 2008 average inflation rate was still growing (3.3% in the
eurozone, 3.7% in the European Union). But the overall picture has
deteriorated dramatically since the last quarter of 2008 and more so in 2009.
The most recent data for the eurozone indicate a negative inflation rate in
the three months since June 2009.
5.
Conclusions
We should ask ourselves whether economic policy coordination in Europe
is indeed apt to fight the recession that started in mid-2008. We know that,
when faced with a strong and systemic negative demand shock, macro
policies in the Union should be expansionary and decided upon and
managed jointly in order to obtain the most effective results. While
monetary policy is well-suited to these needs, fiscal policy in Europe is not,
for reasons already outlined in the discussion about the Stability and
Growth Pact, which is the only instrument available for budgetary
coordination. Due to the Pact being ill-conceived, there is an explicit
limitation on proper fiscal expansion: according to the Pact’s rules, for
example, but contrary to any economic rationale, on 18 February 2009, six
EU countries (France, Spain, Greece, Ireland, as well as Malta and Latvia)
were affected by an excessive deficit procedure due to their negative
balance in 2008. The same procedure will presumably concern 13 out of 16
euro countries next year and it is difficult to understand how they will be
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 63
able to avoid useless, indeed harmful sanctions foreseen by the Pact, unless
the latter is quickly reformed – be it in a formal or informal way.
Unfortunately, for the time being, this would seem to be difficult, as France
and Germany do not agree on the direction to be taken: the former wants to
spend more in order to oppose the current cyclical downturn, while the
latter is sticking to the old rules, as it fears the inflation-boosting effects of
deficits. Germany, moreover, is generally afraid of having to ‘foot the bill’,
which is why Berlin is against many other innovative proposals, including
the supply of Eurobonds.
A quick and successful exit from recession also requires some
changes to financial markets: their performance is still less satisfactory than
before the summer of 2007 and continues to suffer from excessive volatility.
No doubt, public guarantees on bank debt and recapitalisation operations
concerning financial and sometimes non-financial companies (as in the
automobile sector) have played a positive role. Presumably the housing
bubble is almost over and the subprime mortgage crisis is all but over, but
the diffusion of toxic assets through risky securitisations is still considered
as very dangerous; financial companies are supposedly not yet totally clean
and full trust in transactions is still lacking. To restore ‘initial conditions’,
two further public interventions would appear to be necessary:
•
Bad assets should be completely eradicated from financial companies,
particularly large multinationals. Up to now, governments have tried
to set a conventional price for toxic assets that have no market. The
problem is that if this price is too low, companies do not sell them,
but if it is too high, tax-payers do not pay for them. Maybe it is
necessary to use public money to buy the entire financial companies
under critical conditions, whose market price is revealed on the stock
exchange, and later separate the good from the bad, selling back the
latter once finally cleaned up. It is not known, however, whether
markets and agents would like these temporary forms of
nationalisation, even though at least in the European Union they
were explicitly agreed on 12 October 2008.
•
The capital markets being globalised, the best corrective and
preventive solutions to the problems of the financial sector should be
decided at supranational level. European coordination would then be
necessary, but probably not sufficient. The quality and extension of
the supervision of financial markets should improve. Markets should
become more transparent, all financial operators should be subject to
64 | FIORELLA KOSTORIS
controls (beyond national borders if companies are multinationals),
conflicts of interest should be eliminated, particularly in rating
societies and the existing rules should be strictly implemented. Some
steps forward are currently being taken both in the European Union
and the United States in an uncorrelated, though possibly nondivergent way (Hamaui, 2009). Yet, fundamental changes on this side
of the Atlantic appear to be difficult. This is because big European
partners have always had different opinions on the optimal
governance for microeconomic and macroeconomic prudential
supervision: Paris feels that bank monitoring should be part of
monetary policy (thus implicitly tending to assign such tasks to the
ECB), while Berlin thinks it should be better managed by an
institution having no control over monetary policy and reference
rates. London considers that monitoring should be simultaneously
extended to all financial intermediaries and insurance companies. As
a consequence, the European Council Conclusions of June 2009,
rather than imposing some Union coordination on financial
supervision, only pay lip service to “the need to improve the
regulation and supervision of financial institutions both in Europe
and globally”, de facto exclusively supporting the creation of a
European Systemic Risk Board (previously envisaged by the
Commission Communication of 27 May 2009). This new instrument
should monitor any threat to financial stability caused by macro
phenomena and risks of contagion, thereby providing a first partial
answer to macro, but certainly not to micro, prudential supervision
coordination problems.
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 65
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COM(2008)
800
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ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 67
Annex
Using an extremely simple model, itself an extension of a previous one
(Kostoris, 2006), the rationale of the Stability and Growth Pact is shown, but
also its main analytical weaknesses (which cumulate with those concerning
its governance and its system of sanctions and incentives).
All variables are defined in terms of percentage deviations from their
long-run values, except for the nominal interest rate, i, and are described by
capital letters. All other small letters are parameters, assumed positive. The
output differential of country a, Ya, is assumed to depend only on the
deficit gap of that country, Defa, on the expected real interest rate, (i - Πea)
with Πea equalling the expected inflation rate in country a and on a demand
shock, Ea. The inflation rate, Πa, is an increasing function of the output
differential and of a supply shock, Ua.
First consider in isolation the equilibrium of country a. Aggregate
demand is
Ya = ca Defa – va (i - Πea) + Ea .
(1)
The relation between the deficit and the structural deficit (Defsa)
depends on the economic cycle in two ways: the deficit increases when
there exists an output gap in country a (Ya<0) and, if negative shocks are
common to other countries, when a similar shock arises elsewhere (the E
shock concerning other countries has the same sign as Ea, unless there is an
asymmetric shock, whereby EaE=0). This is indicated by
Defa = Defsa - maYa + da (EaE) ,
(2)
where maYa shows the automatic stabilisers and da(EaE) indicate the
externalities created by a common (or systemic) demand shock. The latter
element is usually ignored, as it is usually supposed that shock Ea is
asymmetric.
Thus, the equilibrium output of country a is
Ya = fa Defsa – ka (i - Πea) + haEa + qa (Ea E) ,
(3)
where
fa = ca/(1 + ca ma) ; ka = va/(1 + ca ma) ; ha = 1/(1 + ca ma); qa = ca da /
(1+ca ma)= da fa; (ha + qaE)>0.
Aggregate supply of country a is
Πa = n Ya + Ua
.
(4)
68 | FIORELLA KOSTORIS
The nominal interest rate is supposed to be determined by the central
bank so as to ensure expected price stability in the medium run, i.e. in the
absence of shocks. Hence, Πea = 0 and i = faDefsa/ka. This implies that in the
medium run monetary policy is able to offset any effect of fiscal policy on
output and prices via an appropriate level of the interest rate.
Let us assume that the government of country a fully internalises the
reaction function of the central bank and the increase of i due to deficit
spending. Let us also suppose that the government cares both about output
stabilisation and about the fiscal rule, concerning Defsa (hence also Defa), as
it wants to minimise the following quadratic loss function La:
La = ½ [Defs2a + la Y2a] ,
(5)
where la captures the relative preference for output stabilisation
relative to the fiscal rule.
Optimisation leads country a to the following decisions:
Defsa = 0 , Defa = - ma ha Ea + daha (EaE),
(6)
with
Ya = haEa + qa (EaE); Πa = n [ha Ea + qa (EaE)] + Ua
(7)
The optimum solution is a structural balanced budget, combined
with a deficit spending in the short term, utilising automatic stabilisers to
counterbalance any possible negative asymmetric demand shock (Ea< 0, EaE
= 0). Under these circumstances, the output gap becomes negative and
inflation declines. The latter condition arises also with a positive supply
shock (Ua< 0). Notice that, when the asymmetric demand shock Ea is
negative, the deficit gap has to be positive and any numerical constraint on
the deficit spending under the level - ma ha Ea is not a first best: indeed, if
there exists a strongly negative asymmetric demand shock, there may arise
a logical inconsistency between Defsa = 0 and Defa < 3% of GDP. On the
other hand, no logical inconsistency arises if the asymmetric negative
demand shock is smaller, so that -ma ha E a < 3% of GDP, or if there is a
supply shock, given that in this event no deficit should be optimally
chosen. Finally, if the negative demand shock hitting country a is common
to other countries, a logical inconsistency may emerge with Defa < 3% of
GDP, even if the shock Ea by itself is not so strong: this is because the
common shock determines a non-linear effect.
Let us now suppose that two countries, a and b, have a single
currency and a common nominal and expected real interest rate (i - Πe);
while they take into account the feedback rule followed by the central bank
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 69
in setting the nominal interest rate, they do not coordinate their fiscal
policies, playing a Nash non-cooperative game.
Their aggregate demand and supply are functionally similar, but
their parameters differ (i.e. fa ≠ fb; ka ≠ kb; ha ≠ hb; da ≠ db; however, n is
common to both countries in order to simplify calculations). The monetary
policy is now determined in a slightly more complicated way, so as to
make the average expected inflation rate equal to zero, in the absence of
shocks, i.e.
(αYea + β Yeb) = 0 ,
(8)
where the superscripts e indicate the expected values, α and β
identify the weights of country a and b respectively, with α + β = 1 and
both positive. Hence the central bank sets
i = (αfa Defsa + βfb Defsb) / (αka + βkb)
(9)
Countries a and b, taking into account the central bank reaction
function (9), minimise their loss function La, as in (5), and similarly Lb, as
follows:
Defsa = Defsb A – Ea (ha + qa E) C
,
(10)
Defsb = Defsa B – Eb (hb + qb E) D
(11)
where
β2fa kbfb ka la
faβkb (αka + βkb) la
A = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ; C = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ;
(αka + βkb)2 + la(fa βkb)2
(αka + βkb)2 + la(fa βkb)2
fb αka (αka + βkb) lb
α2fa kbfb ka lb
B = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ; D = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
(αka + βkb)2 + lb(fb αka)2
(αka + βkb)2 + lb(fb αka)2
- EbAD (hb + qbE) – EaC (ha + qaE)
Hence Defsa = ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯
(12)
1 - AB
with 0<AB<1
and similarly, Defsb is calculated. They both depend on demand
shocks of countries a and b and on common shocks (if the latter arise).
70 | FIORELLA KOSTORIS
Equations (10), (11) and (12) show why there are negative spillovers
created by the existence of a single monetary policy, without any
coordination between fiscal policies. Each country attaches only limited
importance to the impact of its deficit on the interest rate, effectively free
riding in its fiscal decisions. On the other hand, each country reacts to the
deficit change of the other country, leading to an excessive structural
deficit. This bias is, however, lower if there is a systemic shock, as this
provides a positive externality. In fact, the structural deficit spending of
other governments does not only induce negative spillovers, but possibly
also positive ones.
Each country’s structural deficit is not set to zero any longer and this
is due to a coordination failure. To show why this is indeed the case, it is
sufficient to see that, if the quadratic loss function (L) where calculated on
the basis of a common target, consisting of minimising the joint preference
for a fiscal rule and for output stabilisation, as in
L = ½ [(α Defsa + β Defsb)2 + l (α Ya + β Yb)2] ,
(13)
with l equal to the average of la and lb, the optimal solution of (13),
given (8), would be Defsa = 0 = Defsb.
Consequently, (6) and (7) would hold true for country a and similarly
it could be calculated for country b. This consideration is supposed to
provide the rationale for setting the limits on deficit spending in the
eurozone through the Stability and Growth Pact. Indeed, according to
Uhlig (2003):
Ideally fiscal policy should respond to the country-specific ‘fiscal
demand shocks’, leaving it to the European Central Bank to
respond to the average of the country-specific cost-push shocks.
However, each fiscal authority will be tempted to try to improve
the situation for its own country by, for example, expanding
government demand or government deficits precisely when the
ECB needs to combat cost-push shocks via higher interest rates.
With all countries doing so, the ECB ends up combating not only
the cost-push shocks, but the additional fiscal demands as well.
Institutions need to be found that will ensure that country-specific
fiscal policies stick to the task at hand and avoid this free-riding
issue. The Stability and Growth Pact can be seen as doing exactly
that: by limiting country-specific deficits, the temptation in each
country to seek an improvement in its situation at the expense of
all other members of EMU will be limited.
ECONOMIC POLICY COORDINATION AND FAILURES IN EUROPE AGAINST THE RECESSION | 71
However, further elements emerging in (10), (11) and (12), which are
ignored in the Stability and Growth Pact, should be taken into
consideration: a distinction in the binding constraints on the fiscal
behaviour of member states belonging to the single currency should be
made, depending on whether there exists a negative supply or a negative
demand shock, whether it is strong or mild and asymmetric or systemic.
First, in the optimal solution, the ceiling on deficit spending should be
different in the case of a supply and of a demand shock. The 3% constraint
may be too large, facing a negative supply shock, i.e. when essentially no
deficit spending should be allowed, according to equation (6). It may be
correct, when facing a mild asymmetric negative demand shock – when the
automatic stabilisers restore output at the potential level within the limits
of the 3%; it may finally be sub-optimal when there is a strong and/or a
systemic negative demand shock (hence automatic stabilisers are not
sufficient and a discretionary expansionary fiscal policy is called for). The
coordination failure is particularly absurd when there is a systemic
negative demand shock, because each country is positively affected by the
budgetary stimulus of other countries.
5. MARKET INTEGRATION AND
COMPETITION POLICY:
THE CHALLENGES AHEAD
GINEVRA BRUZZONE & LUIGI PROSPERETTI
1.
Introduction
While several objectives have been assigned to Community institutions
since the very beginning and new targets and tasks have been added over
time, the establishment of a single market in which competition is not
distorted is still the core of the European project. It has been and remains
an extraordinary experiment of integration that is respectful of national
diversities.
There are good reasons to keep a central role for market integration in
the EU of the 21st century. Indeed, the European project cannot dismiss its
freedom-oriented compass without losing much of its identity. The
incentives for European undertakings to increase efficiency in order to meet
world competition would become muted and the prospects of economic
growth would dim.
The accomplishment of the single market requires both negative and
positive integration, i.e. the elimination of obstacles to the free movement
of goods, services and factors of production and the adoption of common
policies to ensure the proper operation of market forces.
The objective has not been fully attained yet. The ratio of intra-US
states exports to GDP is around 70% higher than the ratio of intra-EU15
exports to GDP. For services, which account for some 70% of GDP and
employment in advanced countries, markets are still organised along
national lines and cross-border trade remains relatively underdeveloped.
72 |
MARKET INTEGRATION AND COMPETITION POLICY | 73
Only 22% of public procurement in the EU is published for tender and
therefore open to competition.1 The establishment of a Community patent
is still blocked by apparently insurmountable linguistic obstacles, although
it is widely acknowledged that it would substantially reduce the costs for
protection of intellectual property rights in Europe. The transposition of
directives is slow and of low quality. The implementation of Community
rules, contrary to what would be expected in a truly integrated area, leads
in some cases to highly divergent results.
It may be argued that the attainment of a single market where
competition is not distorted is a moving target, which will never be reached
definitively. It is necessary not only to remove barriers that still hamper the
fundamental freedoms, but also to ensure that new barriers are not created,
that competition rules continue to be applied so as to avoid distortions
resulting from the conduct of companies or from state measures. Common
policies have to be adapted to changing market conditions and
technologies. And yet there is room for improving the current situation
with new distortions arising from national interventions to cushion the
impact of the economic slump.
As to the political economy of regulation, it has long been recognised
that removing barriers to open markets must confront a fundamental
difficulty: the costs of greater market freedom inevitably fall on
incumbents, who will therefore resist liberalisations, whereas those likely
to benefit from them are usually less aware of the attendant advantages
and therefore will not make their voice heard.2
Over time, there have been several waves of low popularity of
economic integration in the EU internal market, owing either to legitimate
concerns regarding the protection of social values and cohesion, or to the
lack of visible benefits, or, naturally, to the impact of market opening on
vested interests. When the economy is down, the problem worsens, as
many recent examples confirm once again.
In autumn 2008, the outburst of the economic and financial crisis was
followed by widespread calls for a suspension of the application of EU
state aid policy so as to allow member states more room for manoeuvre in
1
See Ilzkovitz et al. (2007).
2
On these issues, see Amato & Laudati (2001).
74 | BRUZZONE & PROSPERETTI
managing the crisis. In the main the European Council managed to resist.
However, the member states have taken quite a few measures designed to
protect domestic industry and employment; in a number of cases they have
notified the Commission aid measures which clearly discriminate in favour
of national companies and therefore required adjustment before being
considered compatible with the common market.
A paramount example was provided by the process which led, in
2006, to the adoption of the Directive on services in the internal market.3 In
the context of the enlargement of the European Union, the initial proposal
by the European Commission, aimed at removing residual obstacles to the
fundamental freedoms in the services sector, was perceived as threatening
social dumping within Europe and therefore met strong opposition by
trade unions in several member states. Prolonged negotiations led by the
European Parliament eventually succeeded in reaching an acceptable
compromise, but numerous amendments weakening the original text were
required before the Directive could become politically acceptable.4
More generally, in recent years the demand for protectionism
mounted in several member states.5 In this perspective, it has been widely
debated whether some of the changes introduced by the Lisbon Treaty
imply a weakening of competition policies.
As is well known, following strong pressure by the French
government, undistorted competition is no longer included among the
objectives of the EU, although it has maintained its place among the
instruments necessary to achieve integrated markets. Article 3 of the new
Treaty on European Union states that the Union shall establish an internal
market and shall work “for the sustainable development of Europe based
on balanced economic growth and price stability, a highly competitive
social market economy, aiming at full employment and social progress, and
a high level of protection and improvement of the quality of the
environment”; the promotion of scientific and technical progress is also
mentioned, but the protection of competition is not. In order to find the
statement whereby the internal market as set out in Article 3 of the EU
3
Directive 2006/123/EC on services in the internal market.
4
See Micossi (2006).
5
See contribution by Bastasin, in this volume.
MARKET INTEGRATION AND COMPETITION POLICY | 75
Treaty includes a system ensuring that competition is not distorted, one has
now to turn to a recital of Protocol 27.6
One argument playing down the anti-competitive signal implicit in
the removal of undistorted competition from the Treaty goals maintains
that the protection of undistorted competition never was an end in itself
(but is the promotion of technical progress an end in itself?). Furthermore,
all the substantive rules on competition and the internal market contained
in the EC Treaty have survived in the Treaty on the Functioning of the
Union,7 which in addition requires that the economic policy of the Union
and the member states be based on the principle of an open market
economy with free competition, and explicitly acknowledges that this
principle favours an efficient allocation of resources.8
Importantly, Article 86 of the EC Treaty remained untouched:
therefore, services of general economic interest remain subject to the rules
on competition “in so far as the application of such rules does not obstruct
the performance in law or in fact of the particular tasks assigned to them”,
although in its application the Courts will also have to take into account a
new Protocol 26 on services of general interest, which emphasises the
importance of services of general interest in the interpretation of the rules
of the Treaty.9
In Protocol 27 the High Contracting Parties specify that, to this end, the Union
shall if necessary take action under the provisions of the Treaties, including Article
352 of the Treaty on the Functioning of the EU. Under that article, the Council,
acting unanimously on a proposal from the Commission and after obtaining the
consent of the European Parliament, shall adopt the appropriate measures.
6
It remains to be seen whether, without an express mention of the target of
undistorted competition in the EU Treaty, Community courts will still be willing to
adopt an extensive interpretation of the illegality, under EU law, of restrictions of
competition resulting from state measures. In the past, several important
judgments in which the Court of Justice upheld the alleged illegality of anticompetitive measures adopted by member states referred to Articles 3.1.g and 10 of
the EC Treaty as a legal basis. See, for instance, Court of Justice, judgment of 9
September 2003, case C-198/01, Consorzio industrie Fiammiferi (CIF).
7
Articles 119 and 120 of the Treaty on the functioning of the EU (formerly Articles
4 and 98 of the EC Treaty).
8
9 Interestingly, Article 16 of the EC Treaty, introduced by the Amsterdam/Nice
Treaty, and now transposed in Article 14 of the Treaty on the Functioning of the
76 | BRUZZONE & PROSPERETTI
A pro-competitive single market agenda requires an active marketing
effort vis-à-vis citizens and stakeholders so as to make the resulting
benefits visible and understood by the public. There is also a need for
effective measures supporting those who find it more difficult to cope with
the consequences of integration. These measures will have to give
particular attention to creating the conditions for enhanced flexibility of
economic structures and factor markets, including appropriate support for
human capital investment and employability.
In this paper we focus on four main challenges that must be met by
European market integration policies in the coming decade: i) becoming
closer to citizens; ii) keeping stable principles while avoiding unjustified
rigidities that can feed opposition to pro-competitive policies, and
improving the integration of structural policies in Europe; iii) reaching the
right level of harmonisation of common rules; and iv) improving the
institutional arrangements for their implementation.
2.
Becoming closer to citizens
In principle, the protection of competition and the completion of the
internal market are viewed favourably by European citizens. However,
there are differences between member states. For instance, the responses
provided by citizens of the larger countries to the assertion “Free
competition is the best guarantee of economic prosperity” (Table 1) show
heterogeneous social welfare functions, and these are quite stable, being
only weakly affected by the financial crisis.
Moreover, in responses to the question “Which aspects should be
emphasised by the European institutions in the coming years, to strengthen
the European Union in the future?”, the European internal market ranks
tenth, after economic affairs, social and health issues, immigration, the fight
against crime, environment, energy, solidarity with poorer regions, the
fight against climate change and education (Figure 1).
EU, was weaker since, while requiring the Union and the member states to take
care that services of general economic interest operate on the basis of principles
and conditions that enable them to fulfil their missions, it expressly recalled the
Treaty competition provisions.
MARKET INTEGRATION AND COMPETITION POLICY | 77
Table 1. Responses to the (2009) Eurobarometer assertion “Free competition is the
best guarantee of economic prosperity” (%)
EU-15
Germany
France
United Kingdom
Spain
Italy
I agree
63
75
48
63
57
69
I do not agree
26
21
40
22
27
23
I do not know
11
4
12
15
16
8
Source: Eurobarometer, September 2009.
Figure 1. Responses to the question: “What aspects should be emphasised by the
European institutions in the coming years, to strengthen the European
Union in the future?” (%)
Source: Eurobarometer, September 2009.
78 | BRUZZONE & PROSPERETTI
Looking at the very different policy areas, this ranking is no surprise
and clearly reflects the increasing demand for security by European
citizens. However, it also shows that proactive measures are needed to
create a sense of ownership by European citizens as far as the policies for
the market are concerned.
There are several ways in which Community institutions can try to
make such policies closer to stakeholders and, more generally, to citizens.
They include, for instance, better regulation initiatives aimed at improving
the quality of Community legislation, including extensive use of public
consultation and ex-ante and ex-post impact assessment.
It is also useful to try to quantify the costs of non-integration and
restrictions of competition so as to increase awareness of the potential
benefits of pro-competitive policies. Since publication of the authoritative
Cecchini report on the ‘costs of non-Europe’ in 1988, increasingly
sophisticated empirical studies have been undertaken for this purpose by
the Commission and private researchers. For instance, when the discussion
on the services Directive was raging, economic analysis usefully pointed
out that the productivity gap between the EU and the US is largely
explained precisely by the obstacles to the establishment of a single market
for services.10 In preparation of the recent Single Market Review, it has been
stressed that, as a result of the progress made over the period 1992-2006 in
achieving an enlarged internal market of 25 member states (including
liberalisation of network industries), “GDP and employment levels have
increased significantly. The estimated gains from the internal market
amount to 2.2% of EU value added and 1.4% of total employment (or 2.75
million jobs). Moreover, these gains could be doubled with the removal of
most of the remaining internal market barriers.”11
Other empirical studies have purported to assess the effects of
competition policy in promoting productivity growth, again with evidence
of positive effects.12
As to the enforcement of competition policies, in the last decade the
Commission has strived to ‘modernise’ the system, with the ultimate aim of
10
Micossi (2006); van Ark et al. (2008, p.38).
11
See Ilzkovitz et al. (2007).
12
See Buccirossi (2009).
MARKET INTEGRATION AND COMPETITION POLICY | 79
increasing the awareness that enforcing competition rules is not a matter
reserved to antitrust experts, but produces important economic benefits
ultimately accruing to European consumers. Both in antitrust and the
control of state aid, several notification requirements have been eliminated.
In antitrust, the Commission placed an increasing emphasis on clear
priority-setting by public enforcers, so as to focus on the infringements
more likely to harm consumers, notably cartels.
Under the new approach, the Commission is also making intensive
use of fact-finding sectoral investigations in sectors that are crucial to
European consumers, such as retail banking, gas, electricity and the
pharmaceutical industry. Recent conferences promoted by the Directorate
General for Competition address issues that, only ten years ago, would
have appeared odd, such as “How has competition policy benefited
European consumers?” or “How can we deliver continuous improvement
in consumer relations?”13 Community institutions have also undertaken to
make the control of state aid more intelligible to laymen. Procedures have
been made more transparent and the Commission has started to explain its
strategy concerning state aid in plain language, unprecedented in this area.
Notably, it has tried to convey the message that EU member states should
tend towards a system with “less and better targeted state aid” and that
state aid measures can be justified only when they aim to remove clear
market failures. It has also begun promoting private actions for damages
arising from state aid.14
Although it remains unlikely that policy areas such as antitrust and
the control of state aid will ever become truly popular among European
citizens, the efforts to make pro-market policies perceived by citizens as
less distant from their private interests are indispensable, in order to avoid
that the single market and competition policies continue to be viewed as
matters for Eurocrats.
See the programme of the Conference on Competition and Consumers in the 21st
Century,
21
October
2009,
on
DG
Comp’s
website
(http://ec.europa.eu/competition/consumers/events/2009/index.html).
13
See the study conducted for the European Commission on these questions by
Jestaedt et al. (2006).
14
80 | BRUZZONE & PROSPERETTI
3.
Stable principles and integration of structural policies
As anticipated, with the outburst of the economic and financial crisis,
European control of state aid risked being set apart, and this scenario
would certainly have had permanent consequences. The challenge for the
Commission was to keep the basic principles unchallenged, while showing
sufficient flexibility to meet the demands for state aid that were justified by
the need to address a crisis of unprecedented gravity. The Commission was
sufficiently capable of meeting the challenge. It founded its criteria for the
assessment of state aid during the crisis on a special legal basis, namely
Article 87.3.b of the Treaty, which allows the Commission to consider
compatible with the Common market state aid measures needed to
“remedy a serious disturbance in the economy of a Member State”. In so
doing, it was able to rely on more flexible assessment, without prejudice to
the normal criteria that will continue to be applied to state aid when the
system will return to normality. The Commission, although proceeding
amongst harsh criticisms and, somehow, also by trial and error due to the
novelty and complexity of the economic environment,15 succeeded in
avoiding wrecking the system. Member states have always notified aid
plans, the Commission has swiftly examined and generally approved them,
in some cases requiring some changes and the removal of clearly
protectionist measures. Not only has the system of state aid control held
out, it has also helped governments to discriminate on the merits between
requests of aid during the economic turmoil. Unexpectedly, although
several problems remain unresolved, the European regime has come to be
viewed as a best practice internationally.
A call for flexibility in the enforcement of pro-competitive policies
also emerges from the requests for a better exploitation of the synergies
between different European structural policy instruments.16 It can be
Some changes are evident, for instance, in the position taken in the December
2008 Communication on the recapitalisation of banks, compared with the October
2008 Communication on State aid in the banking sector.
15
For instance, Ilkowitz et al. (2007) argue that “internal market policies contribute
towards creating the appropriate framework conditions for European firms to be
competitive at world level. Other policies, including in particular competition
(state aids, merger control and antitrust) and innovation (R&D, education, ICT)
policies, have similar objectives. Potential gains from integrating these different
policy instruments within a systemic approach are substantial.”
16
MARKET INTEGRATION AND COMPETITION POLICY | 81
argued that the quest for integration of policies entails the risk that
industrial policy objectives will systematically prevail over the objective of
maintaining an open market economy based on undistorted competition.
But it is not necessarily so: a more integrated approach to structural policies
can also be undertaken without weakening the fundamental principles of
each policy area.
For instance, the need to reconcile competition policy with the
promotion of efficiency and competitiveness does not necessarily require
external constraints, but only the application of proper competition
principles. In modern competition policy, it is clear that the goal is not the
maintenance of a fragmented market structure, but the protection of the
competitive pressures that are essential to the operation of the market
process. Efficiency is seen as a value, not a risk for competition.
Competition rules are not, in themselves, an impediment to the growth of
European companies, even through mergers and acquisitions.
Acknowledgement that cooperation among competitors may, under certain
conditions, produce positive results, for instance in standard-setting, is also
fully compatible with a modern approach to the application of antitrust
rules.
On the other hand, when requests of weak enforcement of market
principles are justified on the basis of social concerns, giving up the
objective of a single market with undistorted competition does not seem
the right response, because of the negative impact it would have on growth
prospects. A much better strategy is to support further progress in market
integration, including the removal of still high barriers to the mobility of
labour, with a renewed social agenda and better functioning welfare
regimes.17
4.
The proper degree of harmonisation
4.1
Supranational regulation
From the very beginning, the search for the proper degree of harmonisation
in the definition of rules for the internal market has been a matter for
discussion. In order to assess these issues, it may be useful first to address
On these issues, see the two contributions elsewhere in this volume by C.
Bastasin and M. Ferrera & S. Sacchi.
17
82 | BRUZZONE & PROSPERETTI
the more general question of regulatory models in a multinational context
such as that of the European Union. Considering our goals here, we will
refer to the very broad definition of regulation set forth by Stigler in 1981,
whereby regulation is any “attempt on the part of government to use its
authority to influence the economic behaviour of non-government
agents”.18
There are three main economic reasons for supranational regulation:
i) the need to remove barriers among states that reduce trade flows and
therefore welfare, ii) the presence of domestic market failure spillover
effects towards other countries and iii) the greater effectiveness of
supranational, as opposed to domestic, regulation stemming from
regulatory economies of scale.
The first of these reasons underpins the whole Treaty. Article 5
perfectly captures the other two, in stating:
in areas which do not fall within its executive competence, the
Community shall take action, in accordance with the principle of
subsidiarity, only if and in so far as the objectives of the proposed
action cannot be sufficiently achieved by the member states and
can therefore, by reason of the scale or effects of the proposed
action, be better achieved by the Community.
As pointed out by Pelkmans (1998),19 regulatory effects of scale and
cross-country effects are therefore two necessary preconditions for
Community regulation.
Where these conditions are
therefore be efficient, assuming one
complexity of the general backdrop:
indeed take on varying degrees of
concerned, just as perceptions of
communities may vary widely.
met, supranational regulation can
does not underestimate the extreme
market failure-derived problems can
severity depending on the country
said severity by different national
As for the instruments of supranational regulation, they can be
analysed as coming under two main categories: ex-ante regulation and expost regulation. Ex ante regulation is generally based on Articles 94 and 95 (1)
of the Treaty, traditionally used to remove obstacles to the exercise of
18
Stigler (1981).
19
Pelkmans (1998).
MARKET INTEGRATION AND COMPETITION POLICY | 83
fundamental freedoms, as well as to eliminate significant competitive
distortions. According to Barnard’s taxonomy (2004),20 this type of
regulation can take on different forms:
•
Full harmonisation uses regulation to set mandatory standards, the
adoption of which prohibits member states from introducing
different standards, including more stringent ones. Typically, these
are ‘slow’ harmonisation measures, with member states attempting to
negotiate instruments to defend their own firms, as the harmonising
regulation may be good or bad for them.
•
Minimal harmonisation sets minimum standards and leaves member
states free to adopt more stringent ones.
•
Optional harmonisation sets standards that producers in any given
country may adopt for sales in their domestic markets, but which they
must adopt for sales in other countries.
Article 94 empowers the Council to issue directives “for the
approximation of regulations which directly affect the establishment or
functioning of the internal market”; it requires unanimity and produces full
harmonisation. It proved cumbersome and ineffectual, and was eventually
superseded by the Single Act (in force since 1987) with Article 95, a far
more flexible instrument.
Article 95 empowers the Council, acting by qualified majority voting,
to adopt measures for the approximation of regulations of member states
“which have as their object the establishment of the internal market”. It was
underpinned by the famous 1979 Cassis de Dijon decision by the Court of
Justice,21 which had strengthened the presumption in favour of freedom of
circulation of goods, services, capital and people, under the principle of
mutual recognition of national legislations and had subjected the
introduction of restrictions to the strict tests of imperative need, adequacy
and proportionality of the restrictive measures. From that moment onward,
the Commission could concentrate its attention in harmonising legislation
on the measures that were required to eliminate restrictions that could be
justified under the Cassis de Dijon test.
20
Barnard (2004).
21
Case 120/78 Rewe Zentrale v. Bundesmonopolverwaltung fur Branntwein (1979).
84 | BRUZZONE & PROSPERETTI
Article 95 achieved a delicate balance between the requirements of
freedom and the protection of legitimate national interests of protection of
consumers, workers and the environment; it was revised by the Treaty of
Amsterdam in order to strengthen these protections. Thus, the
Commission, in its proposals to the Council concerning health, safety,
environmental protection and consumer protection, must take as a base a
high level of protection. After the adoption of a harmonisation measure, a
member state can maintain national provisions for major reasons
pertaining to public policy objectives recognised by Community law,22 but
has to notify the Commission and the other member states, setting in
motion a review procedure that can approve or reject the measure. New
measures can also be introduced by member states in harmonised areas,
but only on the basis of new scientific evidence relating to the protection of
the environment or the working environment. All Community measures
are subject to safeguard clauses that make it possible to reassess their
adequacy in the face of evidence of insufficient protection.
The Court of Justice made it clear that Article 95 can be used to
eliminate likely obstacles to the exercise of the fundamental freedoms as
well as appreciable distortions of competition in the internal market.23
Recourse to these instruments has evolved over time.
4.2
Common rules for products
Initially, full harmonisation measures under Article 94 were used
extensively to standardise all products from a technical standpoint, and
their application would be sought whenever a country barred the goods of
another from access to its domestic market, with obvious costs in terms of
competition and innovation.
As was mentioned, the Court of Justice’s Cassis de Dijon ruling
represented a turning point. It clearly stated that full harmonisation was
normally unnecessary, and that different countries could legitimately opt
for different forms of regulation, provided that regulatory restrictions
complied with necessity and proportionality criteria for the pursuit of
Article 95 refers to the objectives mentioned in Article 30 of the EC Treaty, as
well as to the protection of the environment and of the working environment.
22
23
Case C- 376/98, Tobacco Advertising (1998).
MARKET INTEGRATION AND COMPETITION POLICY | 85
regulatory goals recognised by Community law.24 The ruling thus
sanctioned a principle of mutual recognition for regulatory regimes, subject
however to green-lighting on the part of the country receiving goods
regulated in their country of origin. The principle obviously allows for
regulatory competition, insofar as national regulations that do not meet the
criteria of necessity and proportionality are made to compete against those
applied in other countries.25
As of the 1980s, the focus of full harmonisation measures was thus
gradually restricted to product security purposes, and flexible
harmonisation based on essential requirements of protection became the
rule. This evolution was favoured by the so-called ‘New Approach’ to
internal market legislation developed by the Commission after the entry
into force of the Single Act. The New Approach was aimed at limiting the
scope of harmonising directives to the task of defining the essential
requirement of protection, while leaving the determination of technical
details to voluntary standards, prepared under Community procedures by
official standardisation bodies and published in the Official Journal, the
adoption of which gives rise to a compliance presumption.
Therefore, as far as the features of products are concerned, there has
been a clear trend away from full harmonisation in favour of increased
flexibility.
In the case in point, Germany was ruled against for having imposed, absent
adequate justification, limitations to the sale of goods that had received all the
required authorisations in their country of origin.
24
This principle is however far from implying a home-country rule, insofar as the
verification of the equivalence of the levels of protection is performed by the host
country, and not by the country of origin. A country-of-origin rule would
conversely assume that compliance checks have been performed once and for all
by the product’s country of origin. This distinction assumed great relevance in
discussions on the Services Directive, as the Commission initally tried to push
through a country-of-origin principle, while the solution ultimately adopted was
that of mutual recognition under the control of the country receiving the service.
There are currently no examples of country-of-origin rule application within the
Community except for cases of full ex ante harmonisation of substantive rules.
25
86 | BRUZZONE & PROSPERETTI
4.3
Commercial relations between business and consumers
It would be misleading, however, to view the evolution of Community
regulation as a one-way trend towards flexibility of regulatory choices at
the national level. The most prominent counter-example is in the area of
consumer protection and pertains to commercial practices aimed at
reaching consumers in the different member states. In this area, the absence
of common rules, including the minimum harmonisation approach
followed by the 1984 Directive that set common rules on misleading
advertising, led to significant divergences in member states which
increased the cost to business of exercising internal market freedoms and
made consumers uncertain of their rights. Therefore, Community
institutions decided to shift to a maximum harmonisation approach:
uniform rules establishing a high level of consumer protection are adopted
at Community level and member states are prevented from adopting
stricter rules. A maximum harmonisation approach has already been
followed in the 2005 Directive setting common rules for unfair commercial
practices in relations between business and consumers.26 The same
approach also inspires the recent proposal of a broad Directive on
consumers rights, which will consolidate four different directives in the
area of consumer protection.27
4.4
Common rules for services
Since the 1980s, the Court of Justice acknowledged that the mutual
recognition principle can also be applied to services. However, it soon
became clear that the barriers to the establishment of a single market for
services cannot be removed solely on a case-by-case basis, by relying on the
direct application of the rules of the Treaty on the freedom of establishment
and the freedom to provide services. The removal of barriers required
coordination of national regulatory models, i.e. common rules.
Most directives follow a sectoral approach. They cover, for instance,
the regulated professions, insurance, banking and financial services,
services relating to travel and tourism, television broadcasting, air and rail
26
Directive 2005/29/CE.
Sale of consumer goods and guarantees, 99/44/EC; unfair contract terms,
93/13/EC; distance selling, 97/7/EC; and doorstep selling, 85/577/EC.
27
MARKET INTEGRATION AND COMPETITION POLICY | 87
transport, electronic communications, electricity and gas and postal
services.
The sectoral approach, however, was not able to tackle the barriers to
the freedom of establishment and the freedom to provide services existing
for a myriad of ever-evolving services that would never be covered by ad
hoc directives. Therefore, the 2006 Framework Directive on services was
adopted with the aim of removing all remaining barriers to the internal
market for services through horizontal framework rules.28 The Directive
requires member states to adopt measures of administrative simplification
and to remove unjustified regulatory restrictions. For restrictions included
on a black list, there is a irrefutable presumption of incompatibility with
Community rules. For restrictions included on a grey list, the presumption
is rebuttable. As for the provision of services, the Directive introduces a
statutory requirement for member states to apply the mutual recognition
principle and allows them to impose additional requirements only for a
narrow set of public policy reasons. Moreover, it strengthens
administrative cooperation mechanisms.
4.5
...including network industries
The experience of Community rules in network industries provides
important hints on the preconditions that must be met for a successful
setting of common rules.
Pro-competitive Community regulation of such industries has
traditionally met strong opposition due to the influence of public
ownership and the political weight of employee unions, and therefore
common rules aimed at opening markets to competition, as a rule, have
progressed slowly.
A relevant exception is provided by telecommunications, but it is
easy to show how the success of European regulatory policies in this area
should be attributed to rather unusual occurrences in the first half of the
1980s. In that period, at the international level, the fall in prices and the
very high growth of the US telecommunications industry, unleashed by the
structural separation of AT&T in 1982, were worrying developments to
The scope of the Directive covers all services with the exclusion of some activities
already covered by specific Community regulation and some specific services such
as, for instance, gambling activities or services provided by notaries.
28
88 | BRUZZONE & PROSPERETTI
European policy-makers, who feared for Europe’s competitiveness. The
very same developments were worrying for European producers of
telecommunications equipment, who feared falling irremediably behind
their American competitors, who were enjoying such exceptional market
growth. These parallel worries helped to foster a highly effective alliance
between the Commission and hardware producers, which was successful
in overcoming the strong resistance of telecommunications services
incumbents. Such a success was greatly facilitated by the widespread
perception that these operators were highly inefficient, as it became
immediately obvious in the UK, when the privatisation of BT and the
partial liberalisation of the market yielded immediate benefits in terms of
price and quality. Nothing succeeds like success, and this convinced even
the countries that were initially most reluctant towards liberalisation, such
as France and Italy, to gradually accept these policies.
The policy mix put in place to liberalise the sector was an interplay
between Council directives, based upon Articles 94 and 95, and
Commission directives, based on Article 86, which were politically feasible
because of the lack of significant opposition to the liberalisation measures.
Regulatory policy in telecommunications was strongly supported by the
antitrust provisions of the Treaty. In the early 1990s, the European
Commission indeed clearly signalled that it intended to extensively use
Article 82, together with Article 86 of the Treaty, in order to promote
competition in network industries. In the Sealink/Stena case, in which it
developed its ‘essential facility’ doctrine, it – unusually – decided to
publish the full text of a decision, despite the fact that the companies
concerned had in the meantime settled the controversy, and in so doing, it
naturally set an effective precedent.
Experience in the telecoms sector continued to provide important
hints in the following years. The new regulatory framework for electronic
communications, enacted with five directives in 2002, endorses the
principle whereby regulation should be used only where the application of
competition rules is insufficient, includes rules for the access to the network
and establishes common minimum rules concerning universal service and
consumer protection. The package of proposals was very well prepared by
the Commission, with a clear indication of the objectives and the proposed
measures. It has been observed that “this greatly helped to put the debate
on a concrete track for a constructive solution, which was acceptable to all
major players. When it came to negotiations in the Council and in the
MARKET INTEGRATION AND COMPETITION POLICY | 89
European Parliament, the basic structures for a solution had largely been
accepted and the debate could be based on this common ground”.29
The experience in the energy sector, whether gas or electricity, was
completely different. For a very long time there was no convincing threat
that procedures would be opened by the Commission against incumbent
operators on the basis of Article 82 of the Treaty, with reference to the
essential facility doctrine. A few attempts were made at national level, but
these were rather rare, and often late: in the E.ON Ruhrgas case, the
Bundeskartellamt’s objection was not endorsed by the German authorities,
and elsewhere no significant case occurred prior to 2000. This time lag
proved very costly in terms of regulatory policy, as it allowed incumbent
operators in the energy sector to prepare for liberalisation (it should be
remembered that drafting the various versions of the gas and electricity
Directives took about a decade), by thoroughly saturating existing power
and gas lines through the simple expedient of renegotiating take-or-pay
supply contracts, while extending their duration and increasing their
amounts.
Not having intervened during such a drawn-out ‘bottleneck
engineering’ phase, the Commission was subsequently faced with
considerable difficulties when new competitors repeatedly met the
objection by incumbents that they couldn’t access the grids because of neartotal capacity saturation. Following an extensive sector inquiry, the
Commission published a not particularly incisive Green Paper still
identifying – nearly 15 years after the submission of the first draft Directive
on the electricity market – harmonisation measures as the main way
forward, and proposing a goal, that of “developing a European grid”, to be
furthered through the setting up of a European gas and electricity
regulator.
Now, although the advisability of Community intervention in this
field is hardly challenged in theory, since there are clear cross-country
effects and equally clear economies of scale to be achieved in regulating
these sectors, a number of obstacles exist. In a strategic situation where
security of supply is all but certain, both for gas and electricity, different
national communities will no doubt react quite differently to the risk of
29
See Renda et al. (2009, p. 7).
90 | BRUZZONE & PROSPERETTI
supply disruption, and for that matter have different degrees of tolerance
vis-à-vis competition-distorting measures in energy markets.
Moreover, it isn’t immediately clear that (let’s say) French consumers
would be willing to ration their own electricity supply in order to provide
power to (let’s say) Italian consumers, should the latter be in need. In this
framework, where the calls for market and policy harmonisation strategies
are morally uplifting but devoid of any concrete impact, the Commission
finally concluded to resort – on a much larger scale than it had done
previously – to antitrust policy. After a detailed sector inquiry in electricity
and gas,30 the Commission has initiated foreclosure cases against E.ON,
EDF, ENI, Electrabel, Distrigaz and other companies, thus supplementing
possible local regulatory and antitrust slackness.31
5.
Coordinated implementation
The application of the subsidiarity principle involves not only the level at
which rules have to be established (Community versus national versus
local), but also how centralised the application of Community rules should
be.
In its recent recommendation on measures to improve the
functioning of the single market, the Commission stresses that it is essential
for a well functioning single market to have a proper system of
transposition, application, enforcement and monitoring of the common
rules and that further work is still necessary in this area.32 Internal market
scoreboards show that timeliness and quality in the transposition of single
market directives are still scarce. Even when directives have formally been
transposed, the frequency of infringement proceedings against member
states is a signal of bad implementation. Supplementary provisions that are
not necessary to transpose a directive are often added in the implementing
legislation, well beyond cases of shared competence where this is justified
by Community rules setting only minimum requirements.
30
The final report is in SEC (2006) 1724, 10 January 2007.
On the policy challenges in the energy sector, see the chapter by V. Termini in
this volume.
31
C(2009) 4728 final. See also the Commission Communication, “A single market
for 21st century Europe” (Single Market Review), COM (2007) 724 of 20 November
2007.
32
MARKET INTEGRATION AND COMPETITION POLICY | 91
The Commission therefore recommends that member states take a
more pro-active role in managing the single market, ensuring that it
functions well. In particular, it advocates a better coordination on single
market issues within member states, as well as initiatives aimed to facilitate
coordination and promote closer links between the administrations of
different member states. It envisages exchanges of officials responsible for
single market issues between national administrations and active crossborder cooperation on single market issues becoming part of the national
administrative culture. These can be viewed as the embryonic stages of an
integrated European public administration.
Further steps have already been taken in specific policy areas. An
important reference is provided by the institutional architecture for the
application of Community competition rules. For the control of state aid
and for merger control, enforcement is fully centralised, i.e. the
Commission has exclusive competence; for the application of Articles 81
and 82 of the Treaty, on anti-competitive agreements and abuse of
dominance, however, the task of public enforcement is shared by the
Commission and the competition authorities of member states. The
Commission and national competition authorities operate as a network
(European Competition Network), with its own rules for the allocation of
cases. For instance, the Commission is considered well placed to deal with
cases involving more than three member states and when a new
competition issue arises, since only Commission decisions are subject to the
scrutiny of the Court of Justice. The European Competition Network also
works as a forum for ‘soft harmonisation’ in the use of instruments and
procedures for the implementation of competition rules, i.e. in an area that
has not been harmonised by Community law.
While European Community agencies have been established in
several technical areas and for specific scientific or managerial tasks,33 so
far neither in network industries nor in financial sectors have proposals
aimed at full centralisation of supervisory and regulatory tasks at the
European level met a sufficient consensus. The idea to set up a European
The tasks of European agencies include, for instance, fisheries control, aviation
and maritime safety, disease prevention and control, the safety of chemical
products, food safety and the implementation of Community rules on trademarks
and designs.
33
92 | BRUZZONE & PROSPERETTI
regulatory authority for telecommunications meets the opposition of a
number of leading countries (United Kingdom, France, Germany). For
similar reasons, the proposal of a European regulator for gas or electricity is
unlikely to succeed, at least in the near future. Also the need to strengthen
prudential supervision in financial markets, strongly highlighted by the
recent financial turmoil, led to new institutional arrangements but not to
the establishment of fully centralised European authorities.
In most sectors, however, there is a clear trend towards closer forms
of coordination for the implementation of Community rules. The
arrangements emerging in the different areas are worth studying.
Groups or networks linking up the regulatory or supervisory
authorities of member states have been established in areas as different as
electricity and gas,34 consumer protection,35 public procurement36 and the
protection of personal data.37 More ambitious institutional arrangements
have been developed for electronic communications and financial services.
In electronic communications, the 2002 framework regulatory
package established a dynamic relationship between the Commission and
national regulatory authorities. It is not the Commission alone who decides
what markets should be regulated. The Commission issues a list of
candidate markets, which it periodically updates, but the decision
concerning whether, and with what instruments, to regulate each of these
markets in any country, is bestowed upon the national regulatory authority
(NRA).
The NRA needs to assess each of the candidate markets in order to
ascertain if they are sufficiently competitive. If they are not, it must impose
obligations upon operators having a significant market power; the
European Regulators Group for Electricity and Gas, with the task of advising
and assisting the Commission in the preparation of draft implementing measures
and to facilitate coordination of national regulatory authorities, contributing to a
consistent application of Community rules (2003/796/EC).
34
Enforcement network for consumer protection, established by regulation (EC)
2006/2004.
35
36
Public procurement network.
Data Protection Working Party, set up by Directive 95/46/EC with an advisory
role on Community initiatives and with the task to promote a uniform application
of the principles contained in the directives in all member states.
37
MARKET INTEGRATION AND COMPETITION POLICY | 93
appropriateness of such obligations must be assessed in the light of the
competition provisions of the Treaty, and of relevant jurisdictional
precedents. The draft decisions of the national authorities must be notified
to the Commission, which has one month to analyse them, and, if it feels it
necessary, to send its comments to the national authority. If the
Commission considers that the proposed measures create barriers to the
internal market, or has doubts concerning their coherence with Community
law, it can undertake an in-depth analysis for two more months, and it may
eventually request that the proposed measure is cancelled. The
Commission’s view of this consultation mechanism is that it has ensured a
consistent approach, in particular regarding market definition and SMP
analysis across Europe, brought sound economic analysis to the market
review process and resulted in increased transparency. Overall, this form of
cooperation between the Commission and NRAs led to better regulation
based on competition principles and contributed to the development of a
common European regulatory culture.
The Commission's comments on the proposed remedies gave
guidance towards a consistent regulatory approach across Europe, whilst
taking into account specific national circumstances. The Commission
focused on ensuring that remedies are appropriate, i.e. based on the nature
of the problem identified, proportionate and justified in the light of the
objectives laid down in the Framework Directive. Implementing a similar
approach in the electricity and gas markets would probably be quite useful,
especially if we consider the fact that national regulators in such sectors
have to bear strong pressures from their national incumbents, which often
limit their effectiveness. Moreover, it could help to reduce divergences in
the way national regulators are proceeding on a number of relevant
matters, such as network access and the rules to be applied to customers
that become eligible.
For financial services, since 2000 a new decision-making structure has
been established under the ‘Lamfalussy approach’ with the aim to improve
regulation across the EU. Initially it concerned only the security sector, but
afterwards was extended to banking, insurance and investment funds.
Under the Lamfalussy approach, framework directives set out broad
regulatory principles (level 1), while detailed secondary legislation is
entrusted to sectoral committees made up of officials from national
94 | BRUZZONE & PROSPERETTI
governments and chaired by the Commission (level 2).38 Further sectoral
committees composed of national supervisory authorities39 play an
advisory role on secondary legislation and monitor the implementation of
common rules in the member states, with the task to ensure convergence
but without binding powers (level 3).
Recently, the Commission has approved a new package of draft
legislative proposals aimed at strengthening the European system of
financial supervision following the financial crisis.40 As far as the
implementation of Community rules is concerned, three sectoral European
Supervisory Authorities,41 which will be composed of representatives of
national supervisory authorities and of the European Systemic Risk Board,
will take over all the functions of the previous level 3 committees with key
additional powers, including the power to issue binding technical
standards in specific prudential areas, as well as binding interpretations of
EU rules and orders to comply in individual cases. They will also be able to
settle disagreements between national supervisors and will play a
coordination role in emergency situations.
Interestingly, even in the much less technical area of the Directive on
services in the internal market, special institutional arrangements have
been deemed necessary to ensure an effective and coordinated
implementation of Community rules. In particular, each member state is
required to present a report to the Commission on the authorisation
regimes and the potentially restrictive regulatory provisions that it intends
to maintain, demonstrating their compatibility with Community rules.
European Banking Committee, European Insurance and Operational Pensions
Committee, European Securities Committee and Financial Conglomerates
Committee.
38
Committee of European Banking Regulators, Committee of European Insurance
and Occupational Pensions Supervisors, and Committee of European Securities
Regulators.
39
The proposal provides for a two-tier system, with a totally new upper level
focusing on systemic risk and macro-prudential supervision (European Systemic
Risk Board – ESRB) and a lower level for micro-prudential supervision (European
System of Financial Supervisors – ESFS).
40
European Banking Authority, European Insurance and Occupational Pensions
Authority and European Securities and Markets Authority.
41
MARKET INTEGRATION AND COMPETITION POLICY | 95
Each report will be forwarded to all member states and will be subject to
mutual evaluation. Moreover, the introduction of new restrictions has to be
notified to the Commission and reviewed under a Community procedure.
The notification and mutual evaluation procedure is essential to bring out
in the open and subject to review all measures potentially violating
Community law. Notably, the provisions of the Directive do not entail any
new legal principle since they basically incorporate general principles
already established by the case law of the Court of Justice. However, by
imposing transparent procedures and a systematic review of restrictions,
which have to be notified to the Commission and member states and
justified one by one, they strengthen the presumption in favour of free
movement and open access.
6.
Conclusions
Any supranational regulatory activity faces a highly complex scenario,
where market failure problems may be rather different, and of different
degrees of seriousness, from country to country. Furthermore, there are
bound to be substantial differences across national communities concerning
the perceptions of such seriousness. Citizens of different countries will also
have different stances vis-à-vis regulation, because they will have different
value systems, and different views concerning the correct degree of
consumer protection.
Supranational regulatory intervention dictated by the overall aim of
defending free trade among member states cannot ignore the fact that there
are potentially relevant trade-offs between such aim and other relevant
objectives of economic policy. It cannot ignore, either, the costs of
regulation: if it's true, in general, that free trade fosters welfare, social
welfare can be negatively affected also by regulatory intervention.
Trying to implement extensive harmonisation policies is bound to
foster diffuse resistance to regulation. In some instances (e.g. popular
English press), this can be explained with historical factors, such as the
remaining fragments of imperial culture and the insularity of the policy
debate in the United Kingdom. In others – such as for services publics in
France – it can be explained by differing political-economic traditions.
But a quick search on the internet concerning European regulation
quickly reveals hundreds of sites, blogs and discussion fora, airing violent
opposition to one or more Community regulatory measures, and it seems
96 | BRUZZONE & PROSPERETTI
doubtful that they can be liquidated by simply labelling them as the result
of ignorance or manipulation.
Over-regulation at Community level is certainly not the answer to the
current challenges. The strategy for internal market and competition
policies in the 21st century requires a more sophisticated combination of
measures: better regulation initiatives to make Community policies closer
to citizens and their benefits more easily perceived; the safeguard of the
fundamental market principles without undue rigidities; appropriate
flanking measures to meet social concerns and a careful pursuit of the right
degree of harmonisation in the different policy areas. Finally, it requires the
search for more effective forms of interaction between EU and national
public administrations, with a view to eliminate the current weaknesses in
transposition and application which undermine the establishment of a true
single market.
References
Amato, G. and L. Laudati (eds) (2001), The Anticompetitive Impact of
Regulation, Cheltenham: Edward Elgar.
Barnard, C. (2004), The substantive law of the EU, Oxford: Oxford University
Press.
Buccirossi, P. (2009), “Competition Policy and Productivity Growth: An
Empirical Assessment”, paper presented at the Lear Conference on
What Makes Competition Policy Work?, Rome, July.
Ilzkovitz, F., A. Dierx, V. Kovacs and N. Sousa (2007), “Steps towards a
deeper economic integration: The internal market in the 21st century –
A contribution to the Single Market Review”, European Economy,
Economic Papers No. 271, January.
Jestaedt, T., J. Derenne and T. Ottervanger (2006), “Study on the
Enforcement of State Aid Law at National Level”, study produced by
external consultants for DG Competition, European Commission
(http://ec.europa.eu/comm/competition/state_aid/studies_reports
/studies_reports.cfm).
Micossi, S. (2006), Fixing the Services Directive, CEPS Policy Brief No. 100,
Centre for European Policy Studies, Brussels, 26 April.
Pelkmans, J. (1998), “A European Telecoms Regulator?”, in P. Vass (ed.),
Network Industries in Europe, Centre for Regulated Industries, London.
MARKET INTEGRATION AND COMPETITION POLICY | 97
Renda, Andrea et al. (2009), Policy-making in the EU: Achievements,
Challenges and Proposals for Reform, CEPS Paperback, Centre for
European Policy Studies, Brussels.
Stigler, G.J. (1981), A comment on Joskow and Noll, in G. Fromm (ed.), Studies
in public regulation, Cambridge, MA: MIT Press.
van Ark, B., M. O’Mahony and M.P. Timmer (2008), “The productivity gap
between Europe and the United States: Trends and causes”, Journal of
Economic Perspectives, Winter.
6. ENERGY AND EUROPEAN
INSTITUTIONS
VALERIA TERMINI
1.
Background
As was the case at the end of the 1950s, Europe today faces an
extraordinarily difficult situation in the energy sector. The Rome Treaties
had then provided a solution and long-term prospects to the energy supply
problems of the previous decade. The European Atomic Energy
Community Treaty entered into force on 1 January 1958, with the aim to
guarantee a shared approach to energy security. These institutions not only
provided Europe’s civilian nuclear energy industry with a common
strategy: they also contributed to the launching of the European Economic
Community.1
Today, for the European Union, the energy issue is even more
complex. Externally, the issue involves negotiating with primary-source
producing countries ‘with a single voice’ and facing competition from highgrowth countries that are currently the largest energy consumers. Between
now and 2030, over 87% of the incremental demand for energy will be
accounted for by emerging economies, and just over half of the increase
Together with the Treaty establishing the European Economic Community, the
participants in the Rome Conference also signed, on 25 March 1957, a Treaty
establishing the European Atomic Energy Community (Euratom) which entered
into force on 1 January 1958. Subsequently, at the Rome Summit convened for the
10th anniversary of the EEC and the EAEC (or Euratom), held 9-30 May 1967, a
decision was reached to unify the bodies of the three communities: ECSC, EEC and
EAEC (initially separate, with the exception of the Assembly and the Court of
Justice); on 1 July 1967, the Treaty merging the executive bodies entered into force.
1
98 |
ENERGY AND EUROPEAN INSTITUTIONS | 99
will be represented by China and India (International Energy Agency,
2008). A further difficulty is that of negotiating with countries and regions
whose use of energy sources is basically political, as is the case with Russia,
Venezuela and Nigeria.
Measures must also be taken internally. The EU countries’ industrial
development strategies require innovation; the huge investments needed to
develop alternative energy sources have to be planned and implemented;
the transmission infrastructure has to be developed and cross-border
connections strengthened so as to broaden the spectrum of potential
primary source supply, inter alia in terms of countries, and interconnect
domestic markets. Policies are also needed to contain energy demand
growth (European Commission, 2007).2
The role and mandate of European institutions remain crucial in this
respect. Experience has shown that long-term European energy policies
readily revert to wishful thinking when European institutions are not given
a clear mandate.
True, the Lisbon Treaty is innovative. It stresses the need for
European solutions regarding energy and environment, especially
considering the urgent need for global strategies. But if we focus on the
ability to implement a common energy policy, we see that unfortunately
the Treaty is only innovative in terms of recommendations to national
governments. Also, this is not enough to overcome the major contradiction
between domestic policies and the European energy strategy – a
contradiction that continues to jeopardise the emergence of a European
market. And that explains the limited effectiveness of policies and the
consequences described below. Before analysing policies in substantive
terms, section 2 will however attempt to recall the main institutional phases
that have led Europe from Euratom to the Lisbon Treaty.
2.
European Institutions: A necessary but insufficient
precondition. From Euratom to the Lisbon Treaties
With the 1958 Treaty establishing the European Atomic Energy
Community (EAEC), the six founding countries, including Italy in a
significant momentum-giving role, aimed to share – in the new nuclear
Under a business as usual assumption, European energy demand is scheduled to
increase at an annual rate of 1.7%.
2
100 | VALERIA TERMINI
industry – the definition of joint safeguard and security criteria, and the
implementation of an investment policy no single state had ever
contemplated. Furthermore, the Treaty aimed to “ensure that all users in
the Community receive a regular and equitable supply of ores and nuclear
fuels”, to quote the fourth mission listed under Title I of the Treaty, and
defined measures to this end.3 The achievement of this goal was to be
guaranteed through the newly set up International Atomic Energy Agency
(IAEA). The IAEA was granted a right of option on ores, source materials
and special fissile materials produced in the territories of member states
and an exclusive right to conclude contracts relating to the supply of ores,
source materials and special fissile materials coming from inside the
Community or from outside.
In the face of this institutional architecture, the European energy
policy outlined in the Lisbon Treaty appears to be a more or less ordered
set of wishes and invitations to show goodwill towards member states.
Institutions, however, are only a precondition, necessary but not
sufficient, for the development of a common energy policy strategy. Even
then, in the wake of the original treaty, a contradiction had quickly
appeared between the domestic policies of a number of member states,
such as France and Italy, and the European strategy for a common nuclear
policy. Interestingly, this contradiction inevitably ended up weakening not
only Europe’s energy policies but also its very institutions.
In particular, the European medium- and long-term strategy soon
entered into conflict with the foreign policy of President De Gaulle, who by
1958 had significantly dampened the French push for European political
integration. He opposed in fact the United Kingdom’s entry in 1963 and
refused to bind France to the pact on civilian uses of atomic energy. It was
also De Gaulle who opted for the ‘force de frappe’: a nuclear arsenal aimed at
granting French foreign policy the power of nuclear deterrence. France thus
embarked on its nuclear testing programme: starting with Gerboise Bleue,
tested in the Algerian Sahara in 1960, through to the first H bomb in 1968,
and the explosion in the Polynesian atoll of Mururoa in 1995.4 Euratom’s
role was thus made weaker.
3
Article 52 of the Treaty.
4 This approach was reaffirmed in 2006, when President Jacques Chirac, addressing
military staff stationed at a nuclear submarine base in Brittany, stated that France,
ENERGY AND EUROPEAN INSTITUTIONS | 101
As we know, France’s opposition was at the time compounded by
Italy’s difficulties. Italy was then at the vanguard of research and
development work for the first facilities implementing the peaceful use of
nuclear energy. Following projects launched in 1953 by the National
Committee for Nuclear Research (Comitato nazionale per le ricerche
nucleari – CNRN) with the United States and with World Bank funding,
following the building of the first nuclear power plants in Garigliano,
Latina and Trino Vercellese, in the early 1960s Italy was forced to scale
down its role for domestic reasons5 until the referendum eventually put a
‘final’ stop to Italy’s nuclear policy. The dismantling in Italy of transatlantic
nuclear research projects, together with France’s attitude and De Gaulle’s
opposition, gradually led to a scaling down of Euratom. Having come into
conflict with the domestic policy of two of the leading founding states, the
Community’s energy strategy shattered and since then has proved difficult
to rebuild.
The oil crises of the 1970s, with the inflation, industrial restructuring
and even lifestyle changes they brought in their wake, were contended
with individually by the European countries. Given the lack of a common
policy, industrialised countries found themselves singularly deprived of
bargaining power when faced with the new primary energy producers’
cartel, and were thus vulnerable to severe consequences for their economic
growth. To this the Germans responded by adopting policies geared to
major industrial restructuring and currency revaluation, while the Italians
and the British conversely went for a set of competitive devaluations.
In other words, during the first energy crisis, Europe did not speak
with one voice. Euratom’s Agency was still there. But its history had
already shown how difficult it is to set up institutions capable of giving
Europe this one voice in terms of energy security, while avoiding conflict
with member states’ domestic strategies.
if threatened with a terrorist attack, could resort to nuclear retaliation. According
to Chirac, “the vital interests to be protected would include both the security of
strategic supplies, such as energy, and the defence of allied nations”.
See Rigano (2002) for a review of the changes in Italy’s strategy, which led it from
front-line involvement in early civilian nuclear projects to their scrapping in the
mid-1960s.
5
102 | VALERIA TERMINI
The issue was to arise again, albeit with different connotations, after
signing the Maastricht Treaty. Europe decided to go for deregulation of
both electricity and gas markets in order to develop a European energy
market, contain energy prices and improve member states’ security of
supply. But European institutions were given no mandate regarding
energy; the project of bringing together domestic energy policies in order to
liberalise electricity and gas markets was ultimately watered down,
yielding a general stance, sanctioned by directives as of the mid-1990s, and
the hope that the Competition Authority would contribute to the ex novo
emergence of competitive markets, thereby making up for other
institutional deficiencies.
At the institutional level, Directives on the liberalisation of domestic
power and gas markets6 focused on promoting national mechanisms to
ease liberalisation in diluting the market power of dominant operators and
introducing elements of competition. In particular, they called for the
setting up of independent domestic sectoral supervisory authorities to
support the liberalisation process; the creation of wholesale electricity
exchanges to provide markets with transparent pricing and a platform
accessible to new producers; and finally – underpinning the whole process
– they required that natural monopoly activities (managing the electricity
transmission grid and gas transport) be unbundled from the potentially
competitive activities both upstream and downstream of the grid (energy
production and sale). This entailed a fragmentation of activities pertaining
to the production, transmission, distribution and retail sale of electricity
and gas, which had traditionally been carried out in an integrated fashion
by major public utilities with national monopoly powers in these sectors.
Europe’s stance carried on in the decade following 1996, the year of
the first Directive; new targets were added – liberalising consumption,
promoting energy conservation, suggesting improvements in energy
efficiency and compliance with new environmental criteria – but the
European energy policy remained unchanged, anchored to the role of
6 Directive 96/92/CE of the European Parliament and the Council of 19 December
1996 concerning common rules for the internal market in electricity, Italian
Gazzetta ufficiale n. L 027 del 30/01/1997; Directive 98/30/CE of the European
Parliament and the Council of 22 June 1998 concerning common rules for the
internal market in natural gas, Italian GU L 204 del 21.7.1998.
ENERGY AND EUROPEAN INSTITUTIONS | 103
existing European institutions and the setting up of national mechanisms to
promote energy market liberalisation, against a backdrop of considerable
diversification.7
A break in the institutional set-up only occurred in 2007:
environmental issues were directly introduced in the stance, goals and
mechanisms of European energy policy through the ‘third energy package’
and the signing of the Lisbon Treaty which modified segments of the Rome
Treaties relating to energy and the environment.
With the Lisbon Treaty,8 European institutions did not actually make
any significant step forward to develop the instruments required for a
common European energy strategy.
The Lisbon Treaty includes new articles concerning energy and
climate change, in both the revision of the Treaty on European Union and
in the Treaty on the Functioning of the European Union. The Euratom
Treaty is added thereto, in a partly revised version that had not been added
to the Constitution. Energy is introduced through the solidarity provisions,
by which states agree to support one another in case of need.9 The need to
fight climate change through international action is also specified.
Competition, however, is no longer included in the Union’s fundamental
goals, and is mentioned instead in an additional protocol. This latter
provision meets a request put by France, which had asked for the
elimination of references to a common market subject to free competition.10
The institutional architecture gained an additional dimension with the
establishment of the EU emissions trading scheme or ETS, which is part of the EU’s
commitment to comply with agreed targets under the Kyoto Protocol (see
Directive 2003/87/CE of the European Parliament and the Council of 13 October
2003 establishing a scheme for greenhouse gas emission allowance trading within
the Community).
7
8
Signed by Heads of State and Government, 13 December 2007.
9
See Article 122 of the Treaty on the Functioning of the European Union.
Title XX has been replaced by a new title and by a new Article 176A on energy,
which reads: “1. In the context of the establishment and functioning of the internal
market and with regard for the need to preserve and improve the environment,
Union policy on energy shall aim, in a spirit of solidarity between Member States,
to: (a) ensure the functioning of the energy market; (b) ensure security of energy
supply in the Union; (c) promote energy efficiency and energy saving and the
10
104 | VALERIA TERMINI
Despite these provisions, the authority and ability to act effectively in
the field of both energy and the environment remain quite modest.11 There
is still no mandate and no authority conferred to Council regarding energy.
Furthermore, on the institutional structure, discussions still focus on
the need to provide the European Union with a regulatory authority
entrusted with supporting liberalisation in the energy sector. Some have
claimed that the institutional vacuum could be filled by assigning a more
extensive and incisive role to the antitrust authority, but this step would
not help resolve a glaring contradiction between market liberalisation
policies and energy security policies, to be analysed in greater detail in
section 3 below. Realistically, in order to overcome this contradiction, what
is needed is an explicit mandate regarding energy policy that would allow
the European Union to negotiate supply contracts on behalf of all member
states. Moving forward with liberalisation is indeed difficult without the
support of a European sectoral authority or a board of national regulators
with a European mandate and the right authority. What is at stake is both
the institutional dimension defining the relationship between the Union
and the member states in the field of energy, and the ability to stimulate
and coordinate member states’ industrial strategies regarding energy; but a
significant factor is the spectrum of possible mechanisms.12
Integrating national markets into a European energy market does
indeed require adaptation to common rules on the part of countries or
development of new and renewable forms of energy; and (d) promote the
interconnection of energy networks.”
Article 4 of the Treaty thus reads: “The Union shall share competence with the
Member States in energy, as in the following principal areas (…)e) environment, f)
consumer protection, g) transport, h) trans-European networks.”
11
These range from the definition of concerted strategies in the guise of Council
recommendations, directives or regulations, to the activation of the enhanced
cooperation modes taken up and redefined in Title IV of the Lisbon Treaty on the
Functioning of the European Union regarding energy and the environment (see
contribution by Giacinto della Cananea elsewhere in this volume). Title IV takes
over the heading of Title VII, “Provisions on Enhanced Cooperation” and Articles
27A to 27E, 40 to 40B and 43 to 45 are replaced by Article 20, which also replaces
Articles 11 and 11A of the Treaty establishing the European Community. The same
articles are also replaced by Articles 326 to 334 of the Treaty on the Functioning of
the European Union.
12
ENERGY AND EUROPEAN INSTITUTIONS | 105
governments starting off from starkly different positions. As regards
primary source availability, for instance, some countries have access to
considerable supply: either because they have nuclear power plants, as do
France and Finland, or because they have oil, as does Norway and to a
lesser extent the UK, or because they have coal, as does Poland, or yet again
because they have opted for renewable sources of energy, as have
Germany, Denmark and the Netherlands. But other countries, such as Italy
or Spain, are conversely far more dependent on external supply. From
another point of view, that of market openness, the reality shows large
differences, which translate into highly asymmetric public policies and
corporate strategies.
The issues raised in Ferdinando Salleo’s contribution to this volume
regarding European identity in connection with enlargement policies are
quite relevant here as well. Is the Union in the process of building a model
that will feature a variety of different levels and densities? Will Europe end
up having a variable geometry, based on enhanced cooperation schemes?
Or in an attempt to break the standstill on institutions and authority that is
currently jeopardising the construction of a European energy market, will
we witness in the field of energy and environment the same granting of
opting-out rights that the UK and Ireland have insisted upon in justice and
home affairs?
In all these issues, European policy has to deal with a genuine conflict
between the definition of its own energy strategy and the national demands
that undermine its effectiveness. Brussels has been calling for liberalisation
and market openness as a first step in the construction of a common
European energy market. But national states, which have to bear the
burden of singly ensuring security of supply, cannot sign on to this in the
required fashion. This induces divergence among domestic policies, as they
are necessarily involved in more or less explicit support of their national
champions. This leads to free-rider behaviour in negotiations with
producers. Which in turn generates a vicious circle that weakens both the
Union and all its member states in international negotiations – as we will
see in the following section.
3.
European strategy and domestic policies: Goals, conflicts and
proposals
The starting point is that the European Union has never had a mandate to
implement a common energy policy. It has therefore from the very onset
106 | VALERIA TERMINI
been forced to adopt a gradual and indirect strategy, at times resorting to
general policy statements, at others to the definition of shared rules.13
And precisely because both instruments and institutions were
indirect and inappropriate, the path ended up being unnecessarily
tortuous. As mentioned above, an initial approach was outlined by the 1996
and 1998 Directives on domestic market liberalisation, which aimed to
reduce internal barriers within the Union’s markets for electricity and gas
in order to develop a European market. But the European Commissioner
for energy did not have an explicit mandate to do anything more than
indicate a general stance and address recommendations to member states.
Member state responses have proved quite asymmetrical. At one
extreme, France, with its very strong state sector, was keen on defending its
national champions, with their vertically integrated production structure.
At the other extreme, the UK and to some extent Italy as well, from 1999 to
2007, subjected their electricity markets to significant change, involving
unbundling, production break-up, market liberalisation and supervision by
a sectoral authority.
On the other hand, in the absence of a European regulator
empowered to impose unbundling rules, in order to dissociate upstream
monopolies from downstream distribution and sales of gas and electricity,
the only way forward was to suggest that governments and if applicable,
industry-level authorities, consider separating grids from service provision:
in terms of ownership, functions, corporate structure or simply from an
accounting standpoint.14
In reality, at the beginning of the process, there was indeed a strong
liberalisation push: electricity exchanges were set up by most member
states, although unevenly and with quite varied fortunes. The UK’s ‘Pool’
was thus highly liberalised, with initial guidelines in 1990 making it
mandatory for all wholesale electricity contracts to be brought to the
13
See Article 249 (former Article 189) of the EC Treaty.
Of the two modalities set forth once again in the Commission’s recent
Recommendation (2007) – namely the corporate separation of companies owning
the grid/network from those entrusted with operations, or the setting up of an
Independent System Operator or ISO (under which the vertically integrated utility
retains grid/network ownership and receives an administered return rate, but is
not responsible for grid/network management or development).
14
ENERGY AND EUROPEAN INSTITUTIONS | 107
exchange; ten years later, in 2001, it was closed down and replaced by a
number of platforms for the bilateral exchange of energy contracts (Neta).15
The Spanish Exchange has conversely retained largely administered pricing
for wholesale transactions. And finally Italy complied completely and
relatively quickly to all the European directives, but it then reverted to
unified management and ownership of the national electricity grid with
distinctly unsatisfactory governance.
The unfavourable international context at the beginning of the new
millennium – such as the Enron failure in 2002 and the Californian
electricity crisis of 2001, even if caused by bad management and/or control
and regulatory mistakes – increased government reluctance to renounce
tried and tested practices such as entrusting security of energy supply to
major public monopolies. Support for the European single market
development strategy, to be achieved through domestic market
liberalisation, thus dwindled to a bare minimum. And gas market
development experienced even more difficulties, inter alia because of
Europe’s notable dependence on Russian gas fields.
This push to liberalisation occurred at the end of the 1990s, at a time
when fossil fuel prices appeared to be contained – notwithstanding the fact
that 53.8% of Europe’s consumption is met by fossil fuel imports (see
European Environment Agency, 2008).16
The contradiction between liberalisation policies and energy security
strategy has eventually blown up. It has blown up with the rise in oil
prices; it has blown up with the Russian gas crisis, triggered by Putin both
for reasons of domestic politics and to raise his bargaining power
internationally. By this token, the Russia-Ukraine dispute regarding natural
gas provision in January 2006, and the further dispute involving Russia and
Belarus in January 2007 are just the tip of an iceberg that could in the end
dramatically highlight Europe’s vulnerability (Stern, 2006 and 2007).
Neta was introduced in March 2001, and Betta (British Electricity Trading and
Transmission Arrangements) on 1 April 2005.
15
Europe’s dependence on hydrocarbon imports is growing. Under a business-asusual assumption, primary source imports are forecast to rise from 50% of current
consumption to 65% in 2030; more specifically as regards gas, imports are
scheduled to increase from 57% of total gas consumption today to 84% in 2030; for
oil, the rise will be from 82% to 93%.
16
108 | VALERIA TERMINI
It was only then that the contradictory nature of asking member
states to break up their major public utilities appeared for what it was
worth. Or rather, the contradictory nature of asking them to do so prior to
having set up the institutions, authorities and mandates needed to ensure
the European Union’s security of supply through unified negotiation. A
process, the incompleteness of which became obvious with the gas crisis
and even before that, with the fallout from the 9/11 attacks and the
subsequent increase in oil prices, heralding ever more uncertain trends.
It has become terribly obvious that neither Brussels’ incentives nor its
recommendations ever yielded the desired outcomes. But hoping they
would was unreasonable. And the outcome of a number of policies
introduced by the European Commission shows that it wasn’t only the
instruments that proved inadequate, but the general strategy.17 A few
examples suffice to highlight the consequences of this contradiction
between European strategy and domestic policies, as in the case of the
plans for the Trans-European Networks (TEN-E) – those cross-border
networks designed to facilitate the interconnection of domestic markets.18
And the strategy aimed at improving gas supply by building liquid gas
vaporisers highlights similar problems in the gas sector.
The TEN-E has a complex procedural architecture: it involves an
incentive policy aimed at strengthening cross-border connections between
electricity transmission grids on the European continent, so as to broaden
the benchmark electricity market. Ten years after inception, it has yielded
one-tenth of its expected outcome. And attempts at importing liquid gas
via sea, supported by the widespread building of vaporisers, with a view to
freeing gas-importing countries from their dependence vis-à-vis a small
The reference framework is provided by amendments to Directives 54/03 and
55/03, amendments to the Electricity and Gas Regulations (1228/03 and 1775/05)
and by the European Council decisions of March and December 2006. Currently,
Directive 2005/89/CE requires that national regulatory authorities report annually
to the Commission on security of supply in electricity; Directive 2004/67/CE
introduces this same reporting requirement for gas supplies as well as for legal
frameworks aimed at developing investment in infrastructure.
17
Trans-European Networks (TEN-Energy) concern projects of common interest
defined and regulated in 1996 with subsequent updates in 1997, 1999 through to
2003. See “Trans-European Energy Networks. Policy and Action”, Lux. 1997 and
http: //europa.eu.int/comm/ten/energy/legislation/index_en.html.
18
ENERGY AND EUROPEAN INSTITUTIONS | 109
number of producers – in particular Russia – and transportation systems
have yielded equally minimal results.
Setting utopia aside, it is clearly difficult to convince utilities to invest
in cross-border transmission infrastructure with a view to broadening the
domestic markets from which they currently derive significant oligopoly
profits. The only way to do this would be to involve these very same
utilities and national governments by having them espouse the mediumterm advantages they stand to derive from a unified European energy
market: in terms of security strategy, joint bargaining power, more
competitively priced supply, increased growth opportunities, corporate
synergies beneficial to innovation, research and transfer of cutting-edge
technology. All in all, these are all long-term benefits that would accrue to
Europe’s industry, upon completion of the liberalisation process, including
in terms of competitiveness.
However, the real difficulties concern Europe’s energy security policy
and the lack of a corresponding mandate. If responsibility for ensuring gas
supply – an essential tenet of energy security – rests exclusively with
national governments, which in recent economic history, since the end of
World War II, have shifted this responsibility to domestic utilities (the
former public monopoly incumbents), the utilities end up representing
citizens in the negotiation of contracts with non-EU producer countries
such as Russia, Nigeria, Algeria, Turkmenistan and Azerbaijan. And
governments must then, together with their utilities, assume the full risks
of political uses of primary sources and political instability in transit
countries. Add to this the absence of supranational rules and guarantees
regarding network/grid access. Even the Energy Charter, designed to
guarantee state reciprocity and third-party access to networks/grids, is
pending ratification by Russia. And Russia can thus decide to not tie itself
down in its bilateral negotiations with European countries’ utilities. So far
these utilities’ strategy has been to enter into bilateral contracts with the gas
monopolies in the upstream segment of the production stream, especially
in Russia. And this is a strategy shared, more or less openly, by their
governments.
The political insecurity is now compounded by economic insecurity
regarding supply availability. Faced with Putin’s new programme to
diversify exports by increasing Asia’s share, one is beginning to wonder
whether Russia will be able to deal with growing internal demand while
continuing to export the amounts of gas required by Europe. One also
110 | VALERIA TERMINI
wonders whether Putin’s strategy, which involves nationalising and using
energy as a priority foreign policy instrument, is compatible with the
investment policy required to develop this sector. The low level of gas
prices, strictly correlated to those of oil, in the 1990s has not encouraged
any significant investment to improve the extraction efficiency and
network infrastructure functionality. Similarly, even when prices were
high, the additional profits accrued by the gas industry were used to offset
low-income growth (Gaddy & Ickes, 2002).19
Faced with these difficulties, European governments and their
utilities have attempted to negotiate an increase in supply contract
duration. Putin has in fact granted European countries 10- to 15-year
extensions, thereby ensuring in 2006 additional profits of about €39
billion.20 However, as these contracts have a take or pay structure, they
require rigid long-term buyer programming: the amounts acquired will in
any event have to be paid for, regardless of whether they are actually
taken.
For this reason too, the opening up of the gas market that can be
activated through the building of vaporisers does represent, in the long
run, an alternative programming model, that may introduce supply
flexibility and competition, by diversifying both sources and suppliers. But
in the short run, by introducing demand flexibility, it would go against
national energy security policies, weakening the bargaining power of major
utilities – having to pay in any case the predetermined offer – compared to
a small number of producers, the leader of which is Gazprom.
In this context, the way in which vaporisers fit into a highly
sophisticated process requires further thinking to devise a comprehensive
strategy covering all the phases of player and country involvement in the
gas industry. Initially devised to make gas supply more flexible, vaporisers
have in fact yielded quite disappointing results in terms of unifying the
European energy market through virtuous and incentive-driven processes,
as has been the case with TEN-E. In this case as well, the problem was not
The situation is similar with respect to oil, where Russia ranks second in terms of
global output after Saudi Arabia, with a 2007 average output of about 9.5 million
barrels a day.
19
While it has maintained a policy of annual contracting with CIS states, at
significantly lower price levels.
20
ENERGY AND EUROPEAN INSTITUTIONS | 111
only inadequate funding. What really emerged was a radical conflict
between Europe’s medium- and long-term vision on the one hand, and the
goals pursued by players assumed to orient their corporate strategies to the
achievement of common objectives, on the other.
4.
Europe’s relationship with the rest of the world: Energy security
and climate change
A third crisis dimension – that of environmental sustainability – has latched
on to the above-mentioned difficulties, which may nevertheless open up
new prospects. This is an issue where Europe has conquered a leadership
role even though so far results have been more significant in political terms,
with the driving role taken on by Europe in the Kyoto Protocal process,
than in strictly environmental terms, i.e. that of containing emissions levels
globally.21
It is therefore essential that we now reflect on the EU’s interests, but
without losing track of the role it may play in the emerging multipolar
scenario and the promotion of multilateral negotiations.
At the international level, as well, the issue of which institutions to
empower with responsibility for process support is crucial. Clearly there is
a need to move beyond the ‘divide and conquer’ policies that often
characterise US bilateral negotiations with primary source producers in
Latin America and Asia, or its strategic and military approach to Middle
Eastern producer countries.
It is equally essential to further the development of the world’s
poorest countries. It is a known fact that today 2.5 billion people produce
energy by burning wood, plant waste and dung, in a very damaging use of
biomass, while another billion is totally deprived of any access to energy.
The United Nations Fourth Report on Climate Change, a reference for policies
aimed at improving climate conditions, indicates that by mid-century global
emissions of gas pollutants will need to be reduced by at least half as compared to
1990 levels in order to halt the increase in global warming. The contemplated 20%
unilateral reduction in European emissions by 2020 corresponds to less than 4% of
the reduction called for globally. According to computations, by 2020 CO2
emissions will exceed the 1990 levels by over 60%, especially as a result of rising
energy – and in particular fossil fuel – demand, with China, the United States and
India coming in first, second and third (Skinner, 2006).
21
112 | VALERIA TERMINI
Not even towards Africa does the EU have a unitary strategy capable of
standing up to China’s new aggressive policy (consider for instance the
close political connection to Angola, thanks to which China has acquired
offshore exploration rights in exchange for loans; or to Nigeria, which has
granted off-shore exploration rights to the Chinese state utility in exchange
for roads and infrastructure).
Even the flexible mechanisms provided for in the Kyoto Agreements
(Joint Implementation and Clean Development Mechanisms), which aim to
promote investment in clean energy production and use through
partnerships between businesses based in the industrialised countries that
have ratified the Kyoto Protocol (and that are therefore listed in Annex I),
and in developing countries (not in Annex I), would require dedicated
structures and institutions, in addition to a far more active and coordinated
European Strategy.
According to the World Energy Outlook 2008, investments totalling
$22,000 billion, nearly $4,000 billion in China alone, will be required by
2030 (see IEA, 2008). Clearly, this raises the issue of where the money is to
come from, considering that major uncertainties regarding both political
context and primary source rules and prices are likely to distort very longterm decisions. International financial institutions will obviously have to be
the first to provide answers.
In this field as well Europe tends to put forth the multilateral
approach it embodies. This was clear in Bali where for the first time
Finance Ministers had been invited to take part in negotiations aimed at
defining financial rules and instruments for the post-Kyoto period. This
was equally clear in the agreement signed last October in Lisbon by a
subset of European countries that has given rise to the International Carbon
Partnership (Icap). The idea underpinning the agreement is precisely that
of setting up a joint fund on the basis of a broader emissions market than
the one we currently have, so as to gain access to significant funding for
both technology transfers and climate change mitigation and adaptation
measures for the least developed countries. That said, it also reflects
economic principles according to which the negative externalities of
emissions generation must be priced and factored in so as to reduce
industrial free-riding. The multilateral approach has been well received:
significantly, the agreement was also signed by a number of US states (in
particular New York, New Jersey and California) that have been exerting
pressure on the US Administration to participate in the new multilateral
ENERGY AND EUROPEAN INSTITUTIONS | 113
agreements launched by Europe, and thereby correct its refusal to
participate in the Kyoko Protocol.
By its very nature the energy/environment problem calls for
concerted global solutions. This method, supporting multilateralism and
the United Nations’ role for the management and direction provided to
global negotiations for the post-Kyoto period, has proved positive; it has
inter alia allowed for the participation in the negotiations of industrialised
countries that had not signed on to the Kyoto Agreements, such as the
United States and Canada,22 and the active involvement of China and India,
countries that are contributing the most to emissions growth globally, as
well as that of Indonesia, Malaysia and African and Latin American
countries. It was the latter in actual fact that forced industrialised countries
to give serious attention to the slotting into the negotiations of
programmes, in particular financial, for adaptation and mitigation in the
face of climate change, and support for the transfer of low-emissions
technology and combating deforestation.
The European Union has therefore scored points in terms of
methodological process and leadership, but it is proving to be much
weaker in terms of content and policy efficiency. As a result it is unclear
whether it will manage to preserve its ‘multilateralist’ leadership position
vis-à-vis countries such as Japan and Canada, or vis-à-vis Asia.
The US administration for its part is currently involved in developing
various alliances, based on a corporate approach, through bilateral
agreements and pragmatic action, the development of public-private
partnerships to support the feasibility of investment in new technology and
the promotion of environmentally-compatible industrial development,
directly activated by private sector businesses.
The issue of process governance is clearly highlighted by the
comparison between the US bottom-up and Europe’s top-down approach
to the ongoing adjustment process. Will the post-Kyoto process elicit
interest in the United States, the Asian countries and the poorest countries
for a multilateral agreement approach, by way of a strategy shared with the
United Nations (through the UNFCCC – United Nations Framework
Convention on Climate Change) that aims to define a joint responsibility
And Australia, which ratified the Kyoto Protocol at just about the time of the Bali
meeting.
22
114 | VALERIA TERMINI
with differentiated obligations and burdens? If so, Europe will have
contributed to significant change. The adjustment process can indeed not
be separated from the role played by dedicated institutions, even
internationally. But it is precisely internationally that Europe risks in the
meantime losing credibility, for not having managed to restore order
within its own borders and for not having figured out how to put an
industrial development spin on environmental issues.
In other words, the European Union has to contend with two issues
at one and the same time, while not remaining anchored to old paradigms.
It must, first, put its own institutional house in order. That is, provide
Council with powers and a mandate regarding energy; set up a European
regulators coordination mechanism; and develop the control instruments
required to make a single market possible. Secondly, it must define not
only the role to be played by Europe in international negotiations but also
the basic tenets of an industrial strategy involving businesses and investors
in post-Kyoto developments. Time has really run out on unilateral, EUwide commitments to reduce GHG emissions, and this last aspect warrants
some further words of analysis.
Using its own unilateral commitment to promote the design of joint
responsibility and differentiated burdens, Europe has shown its leadership
capability in its very best light, with its wish to promote sustainable
development in the poorest countries. This vision, underpinned by the
need to promote integrated policies with respect to energy and the
environment has filled the vacuum created by the US administration’s lack
of interest in pollution issues; it has helped overcome the divide and
conquer policy in the US security of energy supply strategy, based on the
one hand on the ramping up of military relationships in the Middle East,
and on the other on bilateral negotiations, in Latin America and the Pacific,
with primary-source producer countries.
It is important that this action continue, strengthening the role of
international institutions, including financial ones, in order to launch both
the technology transfer process and coordinated support for the
development of the poorest countries. But once these political outcomes are
achieved, Europe will still have to contend with the issue of policy efficacy.
It is a known fact that the Kyoto Agreements’ contribution on this is quasinil. As regards instruments and policies, Europe risks making a serious
mistake if it does not broaden the spectrum of what it considers acceptable
ENERGY AND EUROPEAN INSTITUTIONS | 115
action along the lines of what the US administration, for example, has done
to develop cooperation among businesses.
Technological innovation appears to be the keystone in terms of
addressing and solving the problems of energy and environmental security
now facing the industrialised economies. Businesses’ contributions will
prove essential. Market instruments such as emissions trading, especially if
extended on a global scale, will no doubt prove important in the short and
medium term to price carbon emissions and force businesses to internalise
these negative externalities. But this approach has to be implemented in
conjunction with strategies to promote and facilitate long-term investment,
in order to activate the engine of industrial transformation and
development. This will require huge funds and cooperation between
enterprises, public and private sector and European and developing
countries. And it involves much more than the cap-and-tax mechanisms
devised by the Commission.
Environment, calling for focused technological development, is a
growth opportunity that Europe cannot neglect. And this is a road that
industrialised economies could in part travel together, cooperating in order
to allow countries such as China and India to accomplish the technological
shift demanded by the protection of our planet, and to help move the
poorest countries out of poverty. But to date there have been but occasional
signs of a shared awareness of these issues.
The crucial problem is that a rigorous and for the time being
unilateral (in terms of content) European strategy, neglectful of its impact
on corporate competitiveness, opens the door to industrial relocation
solutions favouring countries that do not yet have binding environmental
targets, such as China or India, and are far less efficient in complying with
environmental criteria. Their industrial processes, for the same goods,
generate more emissions than Europe’s. Consequently, taking the global
view that environmental issues necessarily require, this policy – very costly
for a number of European industries – may well lead to no progress
whatsoever in terms of goal attainment, and no containment of global
emissions.
In other words, the energy/environment package just launched by
the Commission, however careful in using objective and unchallengeable
indicators such as per capita GDP in computing national commitments,
seems to stem more from an administrative logic than from efforts aimed at
activating the engines of technological innovation in energy and industrial
116 | VALERIA TERMINI
renewal in Europe, by fostering partnerships for research, transfers of
technology, and the testing of new industrial models likely to get a boost
from environmental challenges.
Finally, in terms of policy efficiency, even if this costly and unilateral
effort on the part of the European Union were to be on target in 2020, and
assuming improbable zero growth for the rest of the world’s emissions, its
impact on global targets aimed at stabilising environmental pollution
growth and global warming, as uniformly computed by international
agencies and the United Nations’ experts, would be under 4%.
5.
Conclusions
The issue of European energy policy governance has become ever more
central, as a result of the emergency affecting security of supply of primary
energy sources and the environmental emergency of global warming
deriving from excessive GHG emissions. Speaking with one voice, the
European Union has managed to exercise leadership in sensitising the
planet to the Kyoto Agreements and in suggesting a method and a vision
based on multilateral agreements. But this has not been matched by
corresponding effectiveness and results at the policy level. For these to
materialise, the Union still requires institutions with powers regarding
energy.
The Union will have to strengthen its institutions if it wishes to move
beyond the contradictions that currently plague it and are in practice
jeopardising the construction of a single market. As a first stage in a
security of supply strategy, the Union has pushed market liberalisation and
opening, so as to construct a European energy market. But this
liberalisation and this opening up cannot elicit sufficient support from
those states that have had to bear the full burden of ensuring security of
energy supply for their citizens. This has led to diverging national policies,
as governments became involved in supporting, more or less explicitly,
their national champions. And this has also led to free-riding in
negotiations with producers. In short, this is a vicious circle that is
weakening the European Union’s international bargaining power.
On the other hand, only the awareness that a single market will
provide value added is likely to convince governments they should sign on
wholeheartedly to a European plan to open energy markets, convinced that
this single market will represent a positive externality for domestic markets
in terms of increased security. But to reach this point, Europe needs
ENERGY AND EUROPEAN INSTITUTIONS | 117
institutions to support and coordinate domestic market liberalisation, to
provide guarantees as to rules and stances to those utilities that will be
called upon to face up to competition and invest in the market.
Recent years have shown quite clearly how disappointing it is to
think that one can offset the institutional vacuum of a mandate-less Council
and a European regulator that is simply not there, simply by extending
inappropriately the missions and functions of the antitrust authority.
The second message is that the European Union, however significant
the role it has played in promoting and supporting internationally a
multilateral vision of energy policies and climate change, will not be able to
continue playing this role, if it hasn’t beforehand put its own house in
order. Nor will member states be in a position singly and separately to face
up to Asian competition, the growing demand of which is putting pressure
on the very same primary sources they use. European institutions will
therefore have to play an essential role over the next few years if they wish
to avoid having piecemeal interests prevail in energy policy.
However, institutions are a necessary but not sufficient precondition
for cooperation in the field of energy. The outcome so far shown by the
European Commission’s policies demonstrates that their focus remains far
removed from one target: that of starting up the engine of industrial
development, inter alia in the energy sector.
Technological innovation, and this is the third conclusion, appears to
be the keystone to address the issues of energy and environmental security
with which industrialised and developing countries alike now have to
contend. Business contributions will prove essential. Such is the approach
that underpins the bilateral negotiations between governments and
businesses that are at the heart of US policy. But it is also a road that
industrialised countries could travel under the aegis of a necessary form of
multilateralism, cooperating to allow countries such as China and India to
accomplish the technological shift required for the protection of our planet,
and to help the poorest countries pull out of poverty.
This is also a growth opportunity for industrialised countries – and
one that Europe can ill-afford to ignore.
118 | VALERIA TERMINI
References
European Commission (2007), An Energy Policy for Europe, DirectorateGeneral for Energy and Transport, Brussels, January.
European Environment Agency (EEA) (2008), Energy and Environment
Report 2008, European Environment Agency, Copenhagen, June
(http://www.eea.europa.eu/publications/eea_report_2008_6).
Gaddy, C.G. and B.W. Ickes (2002), Russia’s Virtual Economy, Brookings
Institutions Press, Washington, D.C.
International Energy Agency (IEA) (2008), World Energy Outlook 2008,
OECD/IEA, Paris (http://www.worldenergyoutlook.org/2008.asp).
Rigano, A.R. (2002), “La Banca d’Italia e il progetto ENSI: Fonti per la storia
dello sviluppo energetico italiano degli anni cinquanta nelle carte
dell’Archivio della Banca d’Italia”, Quaderni dell’Ufficio Ricerche
Storiche, No. 4, June.
Skinner, R. (2006), Strategies for Greater Energy Security and Resource Security,
Oxford Institute for Energy Studies, Oxford, June.
Stern, J. (2006), The Russian-Ukrainian gas crisis of January 2006, Oil, Gas &
Energy Law Intelligence (OGEL), Oxford Institute for Energy Studies,
Oxford.
Stern, J. (2007), Gas-OPEC: A distraction from important issues of Russian gas
supply to Europe, Oxford Institute for Energy Studies, Oxford,
February.
PART II
THE INTERNATIONAL PROJECTION
7. EUROPE ON THE INTERNATIONAL
SCENE: A UNION OF NECESSITY AFTER
A UNION OF CHOICE?
CESARE MERLINI
European foreign policy will only come into being when capitals
acknowledge that relinquishing jurisdiction to Brussels doesn’t weaken
them, but makes them stronger, because the policy shift increases the
influence of all EU States worldwide. (…) The European option - “make
law not war” - could however turn into a lie worthy of social
romanticism, if Europe’s security policy rules out a military component.
Ulrich Beck1
T
hus far the role of the European Union (formerly, the Community)
on the international scene has been largely passive, in the sense that
it has been less the outcome of policies or political will than the
consequence of its very existence. The EU has been a conspicuous and
expanding reality, an area of prosperity and the sum of important or at
least not irrelevant states. Moreover the Union has been an atypical player
in the world system, because of the implicit, irreversible peace among its
member states, and because of its unparalleled and unprecedented hybrid
of federal and intergovernmental institutions – a model possibly to be
copied in other contexts. The magnetic effect on neighbouring states has
been remarkable and has led to the view that the EU has so far exerted its
geopolitical influence mostly through enlargement, in particular with the
latest accession of ten plus two countries.
Ulrich Beck, Das kosmopolitische Blick oder: Krieg ist Frieden, Suhrkamp Vrelag,
Frankfurt aM, 2004.
1
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With respect to enlargement to include Eastern European countries
formerly belonging to the Soviet empire or even the Soviet Union itself, it
may be noted, by the way, that it has taken place while the West has seen
its global presence and influence shrinking and/or declining. This applies
particularly to the Asian continent, with the unsuccessful wars the US has
fought in it, following the historical demise of the European empires. In
other words a sort of counter-cyclical Western expansion has been achieved
through the attractiveness of its institutions, above all the EU but also
NATO, rather than through the action of its armies.
The perception of the EU as an international player by its shear
existence, not only in economic terms (the euro, trade, competition law) but
also, at least potentially, in political terms is also gaining ground abroad.
Robert Kagan, for instance, an analyst not generally known for his softness
vis-à-vis the Europeans, who he famously said are from Venus while the
Americans are from Mars (Kagan, 2002), subsequently wrote that the
European Union is a “geopolitical miracle” that “in its own way, expresses a
pan-European national ambition to play a significant role in the world, channelling
German, French and British ambitions (…)” Kagan (2007). Former Italian
Foreign Minister D’Alema likes to recall a meeting he had, together with
two other European leaders, with Chinese President Hu Jintao, who told
them, “We are a great power that will be called upon (during the first half
of the 21st century) to manage Chinese-American bipolarism” – at which
point, realising he was addressing a group of Europeans, he added,
“Obviously, Europe will also be there,... if it is united” (D’Alema, 2007a).
To stay with the United States, the expectation that an integrated
Europe will take a more active role internationally is also remarkably high
in the public opinion. In this respect, data recently published by
Transatlantic Trends – an annual survey conducted by the German Marshall
Fund of the United States to measure broad public opinion in the United
States and 12 European countries – are worth noting: in 2009, 63% of
Americans surveyed have a positive view of the EU and seven out of ten
believe that its leadership in international affairs would be desirable. This is
only marginally down from the 77% who, being asked the same question in
2007 had answered “yes”, with 30% adding “very”, while only 16%
answered “no”.2 This apparent US “enthusiasm”, particularly high among
2
Transatlantic Trends (2009 and 2007), various tables.
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registered Democrats, has remained fairly stable over the last seven years
(and is consistently higher, by the way, than that shown by the British in
similar surveys).
In contrast with this passive, but relevant role, is the EU’s formal
foreign policy, which has been conducted prevalently with a technocratic
approach, drawing from mechanisms, almost as if the real world and its
power plays did not exist. The results have not been entirely negligible, as
demonstrated by the various small and medium-scale missions in the areas
of security and defence, and by the activity of the High Representative,
whether independently or jointly with the Ministers of member states, but
they have been marginal.
The saying currently goes that there has been a re-nationalisation of
various European policies over the last decade or two, including foreign
policy. However it would be hard to say that national initiatives and
strategies have achieved much more. Sarkozy’s activism has had limited
impact, except possibly for the second half of 2008, when France held the
rotating EU Presidency (in application of the Kagan paradigm of the
European ‘multiplier’ of national ambitions). The UK foreign policy seems
not to be at one of its highest points. Italy’s unsolicited mediations have not
met with success. Neither have, so far at least, the efforts of such groups as
the so-called EU-3 (the British, French and German foreign ministers with
or without the EU High Representative) or 5+1 (the five permanent
members of the UN Security Council plus Germany), both marking the
dominant diplomatic aspiration of re-unified Germany, i.e. of being
formally recognised again as a great power and consequently becoming a
permanent member of the UNSC – a prospect that seems to have become
more remote with the current US administration.
That said, the ambition for a shared, or at least coordinated,
capability in the fields of foreign affairs, international security and defence
is seldom denied openly and appears as a corollary to the more or less
sincere acknowledgement that the member states, even the big ones, taken
separately do not carry enough weight on the world scene – as another
current saying goes with little consistency with the previous one of renationalisation. Moreover European public opinion has predominantly
shown substantial support for a more active role by the Union in the world,
although consistency is once more limited when such support finds itself
associated with reluctance to shoulder diplomatic action with military or
broader security commitments and expenditure.
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It is in this light that that the prospects of an enhanced role by the
European Union with its current size and borders and in the new
international context must be assessed – if they exist. The compromise
agreement grudgingly reached in 2007 was a substantial step back vis-à-vis
the draft Constitutional Treaty initially devised by the European
Convention (a more democratic forum, incidentally, than a diplomatic
conference), but the Lisbon Treaty, in which it was translated, has been
nevertheless seen as a framework for the EU institutions to resume
progress, particularly in the field of external action, for which a few more
tools are being made available. The external challenges that such
international action face and the internal constraints will be discussed
successively, followed by a suggested policy strategy and a succinct
analysis of the tools provided for by the Treaty.
1.
The international context
One important reason for Europe being more exposed to international
responsibilities is that the United States is less in control of both the general
situation and potential crises than it was a decade or two ago. The past
administration has left behind a number of legacies that weigh heavily on
the present one. Three are of direct relevance to the transatlantic
relationship more than others. The first is the encouragement given to
nationalism in general, and more specifically on our continent, when
promoting bilateral security agreements with countries of the so-called
‘New Europe’ and thus eliciting age-old attitudes and feelings that came
out as an obstacle to the draft Constitutional Treaty and later to the Lisbon
Treaty. The second is that much of the fallout from the G.W. Bush
administration’s policies in third areas is significantly greater for Europe
than it is for America: of the many possible examples, I shall only mention
the Middle-Eastern frustrations that help infiltration of immigrants by
fundamentalist Islamic terrorism and the exacerbation of relations with an
increasingly nationalistic Russia, such as to make it an even more difficult
interlocutor than it possibly would have been. The third negative legacy
concerns the weakening of the multilateral system, either of general
competence (the UN) or of a sectoral one (e.g. the Kyoto Protocol or the
International Criminal Court), that remains a European priority, at least in
principle.
At the end of 2008 the geo-strategic context featured an extreme
variety of threats and conflict modes, from the various civil wars underway
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despite US presence (as in Iraq and Afghanistan) or possibly in gestation
(as in Pakistan) to cases of hostility among states, from the continuing
nuclear proliferation challenges (by Iran and North Korea) to the revived
tensions between the US and Russia. The diffuse threat of terrorism
complemented all that, with its various motivations (ethnic, national or
religious) and manifestations (from guerrilla warfare on the edges of
military conflict to attacks exclusively targeting civilians, be they Muslim or
Western, through the ever more common resort to suicide fanatics). Some
of these crises seemed to be on the brink of a status shift from unresolved to
irresolvable, and not only in the Middle East. Add to that the abysmal state
of the American image around the globe, particularly in the Muslim world,
but also elsewhere (with only two exceptions, Israel and India, not without
significance).
Paradoxically, this state of affairs, which in some respects went
somewhat close to American impotence, came as result of a two-decade
period of solitude of the United States at very top of the global power
hierarchy after the end of the cold war and the ensuing sense of
omnipotence, which made the comparison with Rome at the apex of its
empire so popular among pundits and commentators and, at the same
time, so superficial – as I argued in my essay “The US Hegemony and the
Roman Analogy”, back in 2002 (Merlini, 2002).
In the eyes of most Europeans, the new administration, besides the
extraordinary initial popularity of President Obama, has started on the
right foot as far as foreign policy is concerned. The new commitment to
international institutions, the suggested ‘resetting’ of relations with
Moscow, the open hand offered to antagonistic powers such as Iran and
Syria, the less unconditional support for Israel, etcetera, all have brought
the guidelines of the US action internationally closer to the European
preferences. More importantly the Obama-Biden-Clinton team seems
consistently more inclined towards transatlantic cooperation, counting on
European support and sharing of decisions than their predecessors were.
This does not reduce the requirements for a more active and coherent
European contribution to crisis prevention and management in the
framework of the historically reduced Western influence, let alone
dominance. It rather makes it more imperative. At the same time, the
substantial foreign policy turn taken by the new administration since its
inception is unlikely to bring about visible fruits in resolving the various
above-mentioned critical situations in a short time. If anyone had any
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illusions in this respect, there have been people in Tehran, Jerusalem,
Moscow and elsewhere who care to dispel them. Thus the risk is that of
substituting the past conflict of orientations between the sides of the
Atlantic with a conflict of expectations. The Europeans, who are under
severe budgetary and political constraints domestically, tend to wait for the
outcome of the US foreign policy changes and see whether they will
improve those many critical situations that are proliferating in the broad
arc that surrounds Europe from the East. The Americans now expect
prompt and sizable European cooperation in order to help such a positive
outcome to come about, lest to be disappointed and take unilateral
approaches back into consideration.
The above complex picture of actual or potential geo-political
instability has in fact been building up over the last two decades or more,
while until the summer of 2007 the geo-economic picture had been
consistently rosy and stable, despite a number of warnings voiced here and
there. Then came the subprime mortgage crisis to trigger a recession, which
is being discussed in other chapters of this collection of essays. Suffice it
here to express two considerations. First: ways to reduce the impact of the
global economic slowdown and to allow each country to come out of it
sooner rather than later have taken priority attention by all governments,
while the critical hot spots do not allow for much distraction. And second:
the global distribution of power will likely look different, once the
recession is over, to an extent that is not easy to predict at this stage, while
the conflicts and instabilities of the ‘wider’ Middle-Eastern area seem to be
only marginally affected by the contingent global economic troubles, as
they spring out of roots that are predominantly local, historical, ethnic and
religious.
It is in the light of all this that attention is now turned to the other
players on the international scene, and in particular to those that, contrary
to the United States, still ranking first but declining, rank second or third
but are rising, such as China and India, or have declined already (and more
than the US), such as Russia, which however still ranks as a major power
both because of the past legacy (nuclear weapons) and current leverage (oil
and gas). All these powers basically hold ambivalent views about the
situation – or at least this is the way it looks to us in the West. On the one
hand, they are aware that their current status has been the result of a longlasting economic expansion, mostly driven by the West and marked by a
high degree of global interdependence. The recent downturn, which has
rapidly spread from the West to significantly slow down their growth, has
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come as a confirmation of global interdependence. Now, geo-political
instability may entail additional obstacles to the global recovery, for one
reason or another.
On the other hand, the Chinese are not insensitive to the relative
decline of US power in the world, as their thinking remains well attuned to
balance of power, the dynamics of which appear to them to suggest a
return to a grandeur lost for centuries (see Hu Jintao’s confident prediction
to D’Alema); nor indeed are the Russians, whose nostalgia of a past
superpower status has more recent points of reference. Furthermore, both
countries detect with some satisfaction the dilemmas facing Western
policies, and primarily that of the US, torn between the imperatives of
fighting against terrorism and insurgency on the one hand, and the legacy
of supporting democracy and human rights on the other. In this respect the
Obama administration seems inclined to resort more to diplomacy than to
ideology, along the preferences of most capitals on this side of the Atlantic.
China is for Europe a very important partner, although more exclusively
for economic reasons than is true for the US. Russia is an even more
important partner, since geo-strategic motivations combine with economic
ones, as a consequence of geographical proximity.
India was able to reach a nuclear agreement with the G.W. Bush
administration, which was broadly deemed negative for the global nonproliferation regime, but which was to take the country out of the pariah
status it had suffered. Hence the high ranking of the US in Indian public
opinion, similar to the situation in Israel, as mentioned above. Moreover,
Indian nationalists were not disconsolate at the problems experienced by
the privileged relationship between the US and Pakistan, their hated archrival. They did not win, however, in the last elections, to the relief of
everyone, beginning with President Obama. A civil war in Pakistan, with
the Taliban involved and the control of a nuclear arsenal possibly at stake,
is a great regional concern hardly compatible with India’s aspirations to
resume economic growth and consequent broad power status.
Such a potential chain reaction in the South-Asian region affects
Europe in two respects. India is also an important economic partner,
although not as much so as China. Several European countries are engaged
in Afghanistan, not so much because of the size of the interests they have
there but because of the solidarity they felt for America after 9/11 and now
because the future of NATO, and more broadly the credibility of the West,
may be at stake. Consequently the potential fall-out of failure in
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Afghanistan, let alone of an eventual Pakistani explosion (whatever
meaning this word may one day acquire) is of great concern to them.
However the leverage that even the major European states, let alone the
EU, have there is not remotely comparable with that of the US. Hence,
there appears a lack of adequate commitment in the eyes of some
Americans.
If we come to those critical situations that are high on the
transatlantic agenda and are at the same time geographically closer to
Europe, we find that the very proximity to the EU space becomes a decisive
factor. Cases in point are of course Turkey, Georgia and Ukraine. They are
seen by the United States as ‘border countries’, in the sense that the former
is key in the West’s relationship with Islam, and the latter two are key with
respect to Russia,. As a consequence the Americans believe that Europe
should continue in the longstanding and successful process of expanding
its area of intrinsic security and contemplate the inclusion also of these
countries sooner or later, in the conviction that the prospect will have a
stabilising effect by itself both regionally and domestically.
The Europeans find themselves in a bind. Most of them think they
have given enough in terms of inclusion, the cost of which has been higher
and higher, and tend to consider these cases – as several others around
them – as the object of their enhanced foreign policy, which however is
lacking. Even the intermediate step of including Georgia and Ukraine into
NATO, by the way, is seen with hostility, not so much because of the
Russian sensitivities, as many in the US suspect, but because the alliance
would end up being in serious jeopardy. Moreover, if further EU
enlargement has to be contemplated, other candidates, such as the Balkan
countries, seem to enjoy geographical priority and they are difficult
enough.
Different from what happens in relatively distant areas such Asia or
even the Middle East, the policy choices the Europeans make concerning
their ‘near abroad’ carry a more decisive weight, but such weight is often
connected with the perimeter of the common institutions rather than with
the existence of a common foreign policy. It may also be revealing that as
far as the external action in the economic domain is concerned, the EU’s
response to the recent global recession has been unsatisfactory in terms of
cohesion, but the crisis did generate a new application to join, that of
Iceland.
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2.
The Union’s Internal Context
Let us now turn our attention to within the EU and try to shed some light
on the obstacles preventing the shaping and implementation of a foreign
policy sufficiently active and common. First, nationalism has to be
mentioned, which has been seen as rising throughout the continent. Among
the 27 member states, various expressions and claims emerge on a daily
basis, including in the new members, egged on – as mentioned earlier – by
the two Bush presidencies. But even a country such as the Netherlands,
once a founding father and Europe’s champion, became inward-looking as
shown by the referendum on the Constitutional Treaty in 2004. In Belgium,
another traditionally pro-European country, there are two strands of
nationalisms that risk breaking up the country, its limited size
notwithstanding. We focus here however on two of the more important
and possibly paradigmatic cases, that of the United Kingdom and Poland.
British nationalism is aristocratic and decadent, born of a great
history made up of victories – some more those of others than its own –
which have led to the UK’s current formal status as a great power. But
there have been defeats as well, in some cases cleverly concealed, which led
to the demise of an Empire that once spanned from ocean to ocean.
External to Europe, Great Britain tends to take from integration what suits
its needs, with English pragmatism, and to throw spanners in the works of
the rest, to hinder progress when it is deemed to infringe on its sovereignty.
While it takes advantage of the past enshrined in its permanent seat on the
UN Security Council, it keenly views its role as the closest, although rarely
rewarded ally of the only superpower left. But it has tried also to be
forward-looking, with its flagship stance on the new seas of globalisation,
where the slower and more timorous ships of the rest of Europe’s fleet
follow in its wake. That made the UK even more affected by the economic
downturn and its currency more vulnerable without the euro shield. The
partly consequential dramatic weakening of the Brown government and
the likelihood of an eventual return of the conservatives to 10 Downing St,
with several euro-sceptics among them, suggest that this nationalism and
the related obstacles to European integration and joint action outside are
here to stay.
Polish nationalism, conversely, is less sophisticated and the product
of a history of defeats, often heroic, nurtured by a culture that is
prevalently romantic or religious or both. Located at the heart of the old
continent, Poland has forever been squeezed between major powers that
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have treated it harshly – occasionally with the support, within the country,
of authoritarian, or religious or simply naïf circles. Too often Poland looks
at its past where it finds fodder for its frustrations and recriminations, both
domestic and international, under which it seems inclined to bury the
generous and forward-looking political class that accompanied the return
to democracy and the accession to the EU. The change sanctioned by the
2007 elections was a positive development, however. With time Poland,
which has resented the global recession less than the other Eastern
countries, will move closer to Europe, thanks also to lavish EU funding of
agriculture and infrastructure, the benefits of which public opinion has
begun to acknowledge. By the way, the experience of various previous
accessions shows that even culturally, assimilating participation in the
integrated system takes time. In the field of external action, EU relations
with Russia, a country that understandably touches on the nerves of the
Polish, have been under constant pressure from Warsaw and will remain a
test case.
After two countries at the periphery of the Union, let us turn to two
countries at its heart, beginning with France under the now consolidated
leadership of the new President, whose international activism has already
been hinted at. One however should not be misled by it. In fact, despite the
Gaullist heritage Sarkozy claims to be faithful to, his main role has been so
far one of reducing the very French specificity the Général was so proud to
have brought about. The return to the military structure of NATO is
probably the most evident example. As far as Europe is concerned, Sarkò
has to deal with the legacy of his predecessor, who wrought irreparable
harm to French leadership in it, from the Nice Summit to the call of a
referendum that for all practical purposes “a tué dans l’oeuf”, as the French
say for killing at the start, the Union’s Constitutional option. The 2004
rejection of the Constitutional Treaty was certainly very negative for the
Union, but France’s future position in Europe may also bear its mark in the
long run.
Something similar had happened exactly half a century earlier, with
the Assemblée Nationale’s “non” to the European Defence Community,
which not only killed the European army at its start, but also prevented the
founding of a community devised along French lines, modelled on its
institutions, that would have spoken French. Germany at the time was one
step down the ladder and the UK one step off the European system as it
was taking shape then. Later, with the Common Market, the Community
and subsequently the Union came to rely to a large extent on the Franco-
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German reconciliation then entente, joined first by Italy and Benelux, and
later by the subsequent entrants, including the UK. Over fifty years, in the
management of this so-called ‘axis’, Germany has basically stood for
European integration (and Atlantic solidarity) while France alternated
playing the other pole, and giving more or less free rein to its national
autonomy. Meanwhile, the Germans have fully come up that one step
down, and the British have, at least partly, come across that step off, and
this has changed France’s relative position. Perhaps voters in the French
referendum were not fully aware of this new situation.
Time will tell the long-term consequences of 2004, but I would tend to
think that Paris will have problems maintaining the Paris-Berlin axis with
the same division of labour as previously. In 2006, I wrote in an article that
the foreign policy of united Germany, the Union’s largest member state, “is
moving on a biga, the Roman two-horse chariot, where one horse is
European, and the other stands for the aspiration to become a de facto great
power, even without the de jure sanction of a permanent seat on the
Security Council” (Merlini, 2006, p. 1120). The Germans have now more
choice when it comes to deciding which horse to prod. The French,
conversely, while obviously still decisive, will have less leeway. It may be
fitting such perception the care the current occupant of the Elysée has taken
in mending relations with his partner on the other side of the Atlantic, to
balance its loss of weight vis-à-vis his partner on the side of the Rhine.
Possibly the German response to the French “no” to the referendum
that would have substantially reformed the institutions of the Union has
come this year with the ruling of the federal Constitutional Court, by which
the ratification of the Lisbon Treaty has been given a green light, but with
an accompanying chorus of conditions and provisions that will make the
future working of the Brussels machinery, let alone the famous “ever
closer” integration more problematic. Among other things this applies to
German participation in the development and conduct of common foreign
and security policy actions, especially when a military component is
involved, which is likely to happen frequently. Evaluations of the
Karlsruhe court ruling are still under way, but the suggestion that it comes
to express the rebirth of a German nationalism deserves some
consideration.
The description above of the context inside the Union is meant to
help us identify the national obstacles that stand in the way of Europe
having an active foreign policy. The absence of a common identity, it is
EUROPE ON THE INTERNATIONAL SCENE | 131
said, comes as a further drawback. Hence it might be appropriate to ask a
preliminary question: Does the EU today identify with Europe?
Geographically and in terms of image, the question has to a large extent
ceased to be one. As emphasised above, from the outside the Union is
broadly perceived as a potential state entity covering the continent, so
much so that it is surprising to foreigners that we, from the inside, should
not feel the same. The fact is that politically and domestically the question
still arises.
Internal advocates of autonomous national identities and interests are
more vocal than ever. Their voices are heard on two levels, principally: a)
in the defence of national interests within the Union’s common institutions,
the safeguard of which appears to be less of a priority (as if a zero sum
game were favoured over a positive sum game); and b) in the pursuit of
separate interests and preferences, proximities or distances vis-à-vis third
parties, independently of, or in contradiction to, the stance prevailing
among EU partners. “Les Etats restent au coeur du système international”
said Sarkozy, fully mirroring in this case the teachings of De Gaulle.3.
That view is widely shared. But it is not terribly new, one may say.
An earlier expected return of the nation state to the heart of the
international system occurred just after the end of the Cold War. Also at
that time there was a widespread perception of weak systemic ties, as a
consequence of the blocks’ demise. While this meant to some that the
Atlantic Alliance had lost its purpose and to others, on the contrary, that it
needed to change into a political community, to many it simply spelled the
return to full-fledged national sovereignty. European integration was
supposed to be one of the casualties, being sidelined by the fall of the Iron
Curtain and the consequent reunification of Germany. None of these
scenarios has materialised: NATO has survived as a military alliance (its
current problems not withstanding) and Europe has moved from the
European Monetary System to the euro, and from a Community of 12
members to a Union of 27 (same).
Today the problem is that the strenuous defence of separate interests
and preferences seems to have failed to a large extent to enhance the
national standing of separate countries in the world, as we have seen
earlier in this chapter, and the degree to which it has brought home sizable
3
Palais de l’Elysée, 27 August 2007.
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returns and specific gains is questionable. According to a number of
opinion polls in the EU member states, not only does a broad albeit variable
majority favour a common foreign policy, but both the general population
and European elites are voicing fairly consistent, if not uniform,
assessments and opinions on the issues of concern to them.4
Country-to-country differences remain, of course. A recent poll looks
at those differences that can be identified according to the location of the
considered country in Western or Central and Eastern Europe.5 It has to be
taken into account that, besides geography, the polled countries belonging
to the former group (France, Germany, Italy, the Netherlands, Portugal,
Spain and the UK) have been members of the EU for a longer time those of
the latter (Bulgaria, Poland, Romania and Slovakia). Well, President Obama
enjoys more favour and generates more expectations in the first group than
in the second one. That may be not surprising, in so far as the situation was
the opposite last year, when Bush was in the White House. More
unexpected is the fact that concerns about Russia seem to be sizably lower
in the neighbouring East than in the West.
Differences should not conceal similarities. Attitudes are in fact not
that distant as to the question of desirability of EU leadership in world
affairs: 76% in the Western part and 70% in Central and Eastern Europe.
Both sets of data are substantially higher than those concerning the
desirability of a US leadership: 56% and a meagre 44%, respectively. The
result concerning the European Union fits with the preference of three out
of four European respondents for a more active role of Brussels in the
present global economic turmoil, but is in a striking contradiction with the
low popularity of common institutions and the mounting ‘euroscepticism’
in most of the member states, including those traditionally in favour of
European integration, such as Italy. One is brought to draw the conclusion
that while the ‘European project’ is now on a decline, possibly irreversible,
the ‘need for Europe’ seems to be on the rise. To borrow from the language
currently used for the American wars in Asia, it may be said that a ‘Union
of choice’ is being replaced by a ‘Union of necessity’ in the way Europeans
perceive it.
4
See for instance Eurobarometer surveys and subsequent Transatlantic Trends.
5
See Transatlantic Trends (2009).
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3.
Suggested guidelines for a non-marginal common foreign policy
The dimension, the economic weight and the historical legacy of Europe,
both as a collection of national states and as a common institutional body,
are such as to make the array of problems to be confronted when relating
with the rest of the world very ample indeed and full of challenges. Dealing
with all of them is beyond the scope and space of this chapter. Attention is
focused on the role and opportunities for the European Union in global
multilateralism and broadly speaking in a world in which a number of
systemic ties remain. The related political debate is the one between
ambitions and capabilities. The related cultural debate is one between
interests and values or between realism and idealism. The choice of the
multilateralist approach is made in the assumption that the consequent
priorities are the best outcome of both these debates, an assumption that I
will try to demonstrate.
Praising multilateralism may sound like an ‘idealistic’ refrain
somewhat passé these days, after the blows it suffered at the hands of
Bush’s unilateralism and in the face of the above-mentioned widespread
‘realistic’ assumption of the sovereign states dominating the world scene.
Realism does not necessarily view institutions and multilateral agreements
as flights from reality, but tends to assign them ancillary roles. The issue is
whether that suffices in the current international system. My point here is
that it does not. First of all, let us bear in mind that, despite the many
setbacks, multilateralism made some progress during the last decade: take
the case of the International Criminal Court or of the Kyoto Protocol,
possibly, the first steps of the kind achieved without or against
Washington’s wish. Now the Obama administration seems inclined to
resume constructively the dossiers of the global environment and of the
international law.
Secondly, a multilateral system appears to be the most promising
solution. It would be compatible on the one hand with the growing
interdependence that stems from globalisation, both in its heyday and in
the current economic slump, and on the other hand, with hierarchical
multipolarism, given the large numbers of very different states in the world
today. Multipolarism is not a strategy, but rather is a state of affairs. So is
hierarchy, which is not quite vertical enough to allow for empire, but
possibly not sufficiently horizontal either, so as to suggest a return to the
balance of power of yore, whose historical record for generating
international stability is not positive, anyway. Finally, multilateralism
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appears to be the most effective approach to address global problems with
a high degree of transnationality, starting with global warming.
Betting on multilateralism continues to be in Europe’s best interest.
Out of necessity, first, because the option of Europe turning into a power
that can stand in for a declining America, traditionally dear to the French,6
simply isn’t there. In fact, absent sufficiently strong ‘systemic ties’ between
them, the Europeans are weaker and more exposed to contradictions
between member states and the Union. But out of choice as well, i.e. out of
the vision that in a world so extraordinarily composite (with states and
international institutions, globalisation and localism, nuclear arms and
fanatic terrorism, unbridled secularism and the return of religion, etc.) a
new conceptual approach is required. The so-called ‘post-modern’
European governance system based on shared sovereignty may be a useful
precedent to help to identify such a new approach. The EU does not
harbour the ambition of projecting its power at large. The congenital lack of
what one may call ‘integrated chauvinism’ and the irreversible constraints
voluntarily accepted on continuing or resurgent nationalism by partly
submitting national sovereignty to common institutions should be turned
into an asset rather than a liability when dealing with the rest of the world.
In other words, even if we adopt the realistic assertion that the world game
is still largely a power game, the aforementioned European bet is
tantamount to changing the rules of the game while playing according to
them, for the time being.
Playing the game requires facing commitments and responsibilities.
That is why the strategy advocated here is bound to be civil and armed at
the same time. The residual influence of the cultural and social dimensions
of the European way of life must not be neglected, while economic
instruments such as aid, trade pressure and concessions, the single
currency, etc., must be put to use. Then the capability to help build states
by training people in the various branches of their institutional setup, must
See for example Pascal Bruckner: “The time has come to relieve our older AngloSaxon sister from the heavy burden that is bearing down on her. In the face of the
perils that loom (…) Europe must coordinate its own strategic capabilities and
provide itself with the military power required to obviate ever more obvious
American insufficiencies”. See “Non contate sull’America”, Sunday Edition of Il
Sole-24 ore, 14 October 2007.
6
EUROPE ON THE INTERNATIONAL SCENE | 135
be enhanced. In other words, first and foremost, ‘soft power’. However,
effective international policy on the part of the Europeans should not
hesitate to resort to the use of force – military or police manpower – in the
framework of broader international institutions, insofar as possible, but
also, whenever necessary, in lieu of or in addition to them.
The multilateralist method is therefore to be applied with conviction
as well as pragmatism in order to pursue the primary goals of high-profile
policies to further Europe’s common interests. When looking for the
necessary associates in this venture, attention obviously turns first to the
United States, all the more so with the Obama administration. The current
debate among the foreign policy community in Washington shows a
substantial return to the traditional dialectics between idealism and
realism, as illustrated also by some repositioning of think-tanks.
Multilateralism is in the picture of both schools of thought, albeit in a
different scale of priority.7 Both schools contemplate transatlantic
cooperation in dealing with either crisis situations (such as the wider
Middle East) and systemic problems (such as global warming), although
possibly in somewhat different terms, again. Hence the need for Europeans
to interact with both.
An area of apparent overlapping between the two approaches is the
idea of promoting a League of Democracies as a Western strategy, a
proposal that may yet elicit bi-partisan support in the US. Caution is
advisable here because it forces us to divide those countries whose
cooperation is needed by the West between ‘us’ and ‘them’ (Where does
that leave Egypt, for instance, or Saudi Arabia or Pakistan? What about
Russia? or China?). Moreover, by advocating a sort of ‘ideological
multilateralism’, we risk undermining institutional multilateralism (the
UN, in particular) as well as functional multilateralism (the G8, G20 or
whatever Gs, including the newly contemplated G2). The banner of
democracy should be substituted with that of the rule of law. This means
supporting and defending human rights, helping the adoption and the
implementation of domestic laws that are compatible with them both in the
established partner countries and in the failed states we are trying to put
back on their feet. Electoral democracy is the last chapter in the process, as
history teaches us. Rule of law also means further developing the systemic
7
As an outstanding example of the multilateralist school, see Talbott (2009).
136 | CESARE MERLINI
value of global justice, of properly legitimated rights of international
institutions to interfere in unacceptable situations, and the like.
America is certainly not foreign either culturally or historically to this
approach. Thus the partnership with the US in pursuing it has great
potentials, besides being necessary. Things are more difficult with others.
Let’s limit ourselves to the main powers already mentioned. Europe’s
interdependence with China, India and Russia has been systemically
growing and it may turn out to be even higher after the economic recession.
Thus policies vis-à-vis these countries, whether initiated separately by
member states or coordinated within the Union, are inevitably determined
by the pursuit of interests involved in this interdependence. At the same
time the limitations, conditions and ambiguities of these countries are well
known when dealing with systemic solutions such as treaties or institutions
and what has become fashionable to call global governance. In other words,
their reliability as stakeholders in the global corporation is limited, to use
business terminology. The effort to involve them should not be abandoned,
however, beginning with culture (current multilateralism is to a large
extent a Western concept that must adapted so that it can be shared by
other civilisations) and ending with interests (multilateralism implies
constraints for the West as well as for the rest of the world and it can
provide stability to global interdependence).
Islam is an even more difficult interlocutor. There are Muslim
countries and countries with a strong Muslim presence, often divided on all
issues save for anti-Israeli rhetoric. In recent years there has been a decline
in the power and influence formerly wielded by Arabs, to the benefit of the
Shiites. Moreover fundamentalists often have the upper hand over
secularists. Neither development is in Europe’s best interest and its strategy
should aim to reverse both. Hence a consistent initiative aiming to elicit
regional multilateralism from the rubble of the Middle East could reflect
positively on the strengthening of the Arabs and the secularists. Israel, had
it preserved some of Shimon Peres’ past vision, could perhaps understand
that this would be in its best interest as well. For the time being, however,
the Jewish state has chosen to fight almost exclusively for its own strength,
including territorial expansion, relying on the spirit of the Bible and a lay,
armed Realpolitik.
The Europeans should join what appears a new policy by the Obama
administration aimed at helping Israel to redirect its role towards working
for a secure and equitable order in the area. Not without ambiguities, they
EUROPE ON THE INTERNATIONAL SCENE | 137
seem to be in favour of a regional arrangement but know that it is basically
up to Washington to call the shots. That recognition should be reciprocated
by the US accepting that their allies on this side of the Atlantic have a
decisive word to say in dealing with Moscow and on the issue of whether
or not to further expand NATO, let alone the EU.
4.
The instruments for the EU to achieve a high-profile foreign
policy
Finally, let us briefly recall the main provisions of the Lisbon Treaty (TEU)
regarding Europe’s foreign and security policy.8
Under Article 1, para. 3 of the TEU, “the Union shall replace and
succeed the European Community” and “the EU shall have legal
personality” (Article 47), which means it shall have the ability to negotiate
and sign in its name international agreements of a binding nature for its
institutions and member states.
A permanent President of the European Council, elected by qualified
majority for a two-and-a-half year term that is renewable once, is
contemplated (Article 15). The President’s duties include ensuring the
external representation of the Union for matters relative to the Common
Foreign and Security Policy, alongside the High Representative (see below).
The intent is obviously that of conferring the continuity and consistency not
provided by the current six-month rotating presidency, especially in the
field of external relations.
The other innovation is the High Representative for the Union in
Foreign Affairs and Security Policy (Article 18), to take on the roles,
competences and resources of the High Representative for CFSP and those
of the Commissioner for External Relations (and therefore to have specific
funding in the budget). Nominated by the European Council, ruling by
qualified majority, with the agreement of the President of the Commission,
he/she shall be entrusted with directing the Union’s foreign, security and
defence policy and with contributing, through his/her proposals, to its
implementation in his/her capacity as representative of the External
8 For these comments on CFSP and ESDP, I have availed myself of the analysis of
the Lisbon Intergovernmental Conference drawn up by Michele Comelli (IAI),
Trattato di riforma e politica estera e di sicurezza europea: che cosa cambia?, International
Affairs Division, Italian Senate, October 2007.
138 | CESARE MERLINI
Relations Council (now independent from the General Affairs Council)
which he/she shall chair. His competences include coordinating the EU’s
existing policies and bodies, taking political initiative, implementing crisis
management and external representation.
Finally there is the European External Action Service (Article 27) to be
adopted by the Council, following a proposal by the High Representative.
Made up of Council and Commission staff as well as staff on secondment
from national diplomatic services, this unit shall operate in close
cooperation with the latter, with possible conflicts of competence looming
on the horizon. The Lisbon Treaty, for that matter, does not specify
deliberately the organisation and operation of the Service, to be finalised by
Council decision on the basis of proposals put forth by the future High
Representative. What will also have to be decided is who will chair the
Political and Security Committee (PSC, also known by its French acronym,
COPS), an existing body in charge of monitoring international
developments, formulating opinions for the Council and exercising
political control and strategic direction in Union peacekeeping operations.
Let us turn to the Lisbon Treaty clauses pertaining to European
Security and Defence Policies (ESDP).
1) There are, first of all, a number of solidarity-focused provisions,
including reciprocal defence. This means that “if a member state is a victim
of armed aggression on its territory, the other member states shall have
towards it an obligation of aid and assistance by all the means in their
power, in accordance with Article 51 of the UN Charter (Article 42, para. 3
of TEU). This text is similar to Article 5 of the North Atlantic Treaty, the
‘compliance’ with NATO obligations being for that matter explained a bit
further down in the text. The obligation is extended to traditionally
“neutral” countries, which showed gratitude by having the text specify that
“this shall not prejudice the specific character of the Security and Defence
policy of certain member states” (a good exercise of ambiguity). Another
solidarity-focused provision of the Treaty on the Functioning of the
European Union (TFU) mentions measures to be taken should a member
state suffer a terrorist attack or a natural or man-made disaster. There is
one caveat, however: the provision that states that action shall be joint and
bring to bear all available means, including military, will not apply in the
event of anti-terrorist operations outside the EU.
2) And then there is another provision (Article 42 TEU) that was
actually implemented ahead of the failed ratification of the Constitutional
EUROPE ON THE INTERNATIONAL SCENE | 139
Treaty now replaced by the Lisbon Treaty. It refers to the European
Defence Agency, set up as CFSP action in July 2004, in order to identify and
if necessary implement all measures likely to strengthen the defence
sector’s industrial and technological base (the potentially larger part of the
remit) and contribute to the definition of a European armaments policy.
3) Finally all provisions relative to Enhanced Cooperation have been
taken on board almost in their entirety. The one single exception – not
marginal – is that the exclusion of initiatives with military or defence sector
implications has been removed. This is due to the fact that it is precisely in
this sector that the Lisbon Treaty says that member states with adequate
military capabilities and the desire to enter into more binding commitments
in this field may set up among themselves a Permanent Structured
Cooperation (Article 46), formally open to all, with the purpose of
organising clusters of national and multinational forces, developing
equipment programmes in the framework of the EDA, and achieving
agreed spending and investment targets. In contrast to Enhanced
Cooperation, which requires the participation of at least one-third of the
member states, no floor has been set here. But more importantly, decisions
are taken by qualified majority, which waives the general principle
requiring unanimity in security and defence policy matters.
All these instruments, the potential impact of which is not negligible,
have been tacked on to the existing base of those devised for the CFSP and
the ESDP, both in terms of declarations, official procedures, common
action, etc., and in terms of joint operations such as the several ongoing
civilian operations and the one military (EUFOR Althea, in Bosnia).9 These
instruments have been used to implement what was called, in the
introduction, the low-profile common foreign policy so far performed by
the EU. In shifting from the Constitutional draft, the Lisbon Treaty has not
undergone any major mutilation in this respect, if one discounts symbols –
the flag, the ‘foreign minister’, etc. – ideal targets of nationalistic
reservations.
Before closing, I would like to mention briefly the CFSP’s younger
sister, the European Neighbourhood Policy (ENP), which has mainly
stayed under the Commission’s jurisdiction. It is a little sister indeed, but
not one to be underestimated, as it connects almost without separation with
9
For a review and closer examination, see Bonvicini & Regelsberger (2007, p. 261).
140 | CESARE MERLINI
the CFSP’s more difficult challenges (Russia, the Middle East, Africa).
Moreover it deals with illegal immigration, possibly the most difficult issue
in the area of justice and home affairs, and with enlargement, i.e. the
problem of the Union borders, the political relevance of which was
discussed before. Thus ENP appears squeezed, almost asphyxiated, on the
one side by the problem of Mediterranean cooperation including the hot
issue of Palestine, and on the other by the problem of the inflow of
migrants. A finally further enlargement looms over most attempts of the
ENP to establish more or less special partnerships with this or that
‘neighbour’.
In conclusion, once the remaining dominant unanimity rule is taken
into account, the ‘technical’ limitations to the achievement of an ambitious
foreign policy on the part of the Union remain in the Lisbon Treaty. These
limitations do not pose insurmountable obstacles, however, if a strategy is
adopted and the appropriate instruments to implement it are defined. Of
course, all depends on the famous ‘political will’.
References
Beck, U. (2004), Das kosmopolitische Blick oder: Krieg ist Frieden, Frankfurt aM:
Suhrkamp Verlag.
Bonvicini, G. and E. Regelsberger (2007), “Growing without a strategy?”,
The International Spectator, Vol. 42, No. 2.
Comelli, M. (2007), Trattato di riforma e politica estera e di sicurezza europea: che
cosa cambia?, International Affairs Division, Italian Senate, October.
D’Alema, M. (2007a), “Relancer l’Europe. Les responsabilités des
gouvernements, les enjeux pour la Gauche”, speech by Minister
D’Alema at the Gauche Reformiste européenne Conference, Brussels,
12 February.
Kagan, R. (2002), “Power and Weakness: Why the United States and
Europe see the world differently”, Policy Review, No. 113, June/July.
Kagan, R. (2007), “End of Dreams, Return to History”, Policy Review, No.
144, August/September.
Merlini, C. (2002), “The US Hegemony and the Roman Analogy”, The
International Spectator, Vol. 37, No. 3, July-September.
Merlini, C. (2006), ”Un nuovo ruolo internazionale per l’Europa”, in Il
Mulino, No. 6.
EUROPE ON THE INTERNATIONAL SCENE | 141
Sarkozy, N. (2007), Speech of President N. Sarkozy at the Conference of
Ambassadors, Paris, Palais de l’Elisée, 27 August.
Talbott, S. (2009), The Great Experiment: The Story of Ancient Empires, Modern
States, and the Quest for a Global Nation, New York: Simon & Shuster.
Transatlantic Trends (2007 and 2009), German Marshall Fund of the United
States (http://www.gmfus.org/trends/index.html).
8. THE ENLARGEMENT OF THE
EUROPEAN UNION
ROCCO A. CANGELOSI & FERDINANDO SALLEO
T
he institutional standstill that followed the referendums in France
and the Netherlands also shelved the enlargement of the European
Union to the Western Balkans and Turkey, causing a temporary halt
in a process that had completed a number of stages and aroused
considerable expectations. The formal reason that brought the process to a
halt was the pause for reflection Europe granted itself in order to reconsider its configuration and overcome the stumbling block of the
interrupted ratification process.
1.
European enlargement and vision
In addition to this standstill on the fate of the Treaty, the postponement of
new admission procedures seems to be closely connected to the dilemmas
that institutional review and enlargement policy have spawned for the
Union and its members. The first dilemma hinges on what kind of Europe
can realistically be built and managed with more members than the current
27, with new candidates that are unlike either the core Union countries or
the elusive ‘European average’ – even more unlike those admitted in the
so-called 10+2 enlargement of 2004 and 2007. The second dilemma, which
stems from the first, relates to what kind of Europe can be proposed to
candidates when accession negotiations resume. As European citizens
show increasing awareness of future Union developments, public debate
has been marked by a level of popular political participation that is higher
than that regarding government decisions.
In fact, both conceptually and more importantly politically, the
referendums brought home to European governments two long-avoided or
talked-away truths. Firstly, as is particularly the case in foreign policy
when the feared or real consequences for citizens of important political
142 |
THE ENLARGEMENT OF THE EUROPEAN UNION | 143
decisions are under consideration, the issue of admitting new member
states to the Union confirmed the rule that sooner or later, governments
have to face up to public opinion and the deep-rooted and often
unexpressed feelings prevalent in any given country.
Similarly, debates on institutions and Union enlargement also show
that to some extent the future of Europe is burdened by the anticipation of
a looming, continually postponed ‘hour of truth’, which signals a need to
emerge at long last from the ambiguities skilfully juggled by governments
and diplomats alike. The continuing differences are basically between two
schools of thought: the original vision of a political Europe and the much
less innovative one of Europe-as-a-market, or a free trade area. Although
borders have always been somewhat unclear, there has always been a great
political and conceptual distance between the two major camps –
integrationists and minimalists – not to mention the many undeclared
intermediate positions.
Although attitudes to enlargement have often been dictated by
special relations to this or that candidate country, or by alignment
considerations, enlargement advocates have always had the minimalists on
their side, whereas traditional supporters of integration and the political
model have always viewed with considerable perplexity the potential
consequences of dishomogeneity on the nature of the Europe they were
building: there is, intuitively, a reverse relationship between the breadth of
the European Community and the degree of integration between member
states. Community, and subsequently Union enlargement has from the
outset had two main terms of reference: on the one hand, completing the
founding fathers’ European design – political and institutional and not
simply economic – and, on the other, attempting to achieve convergence
and cohesion between diverse countries, proud of their history and jealous
of their identity but willing to move rationally towards forms of shared
sovereignty. These ideals dictated the principle according to which the
deepening and widening of Europe should proceed in parallel. The
principle is still to be found among the pre-requisites to European
enlargement alongside the so-called ‘criteria’ for aspiring members.
Although at first sight redolent of a political oxymoron, the close link
between widening and deepening was designed and understood as a
hendiadys, a two-for-one, as the belief that the two approaches would
strengthen one another and make a robust and harmonious European
construction possible.
144 | CANGELOSI & SALLEO
Europe has gradually grown from its initial area, improperly termed
‘Carolingian’, to cover a vast region extending from the Atlantic to the Elbe
and to Thessalonica. In the process it succeeded in digesting both a fair
number of incongruities in its common institutions and significant legal,
political and economic differences between members. The European
Community’s enlargement process was thus moving ahead according to an
internal logic based on radically geo-political assumptions of 1989, when
European scenarios and global balance were radically transformed by the
collapse of the Berlin wall and the end of the cold war. The implosion of the
Soviet Union revived an ancient idealistic drive for a Europe that was ‘one
and free’, to be established in a continental area sharing freedom,
democracy and progress. This political premise triggered a process which,
despite a general awareness of the objective difficulties involved, drove the
European Union towards the East and the Baltic Sea as soon as continental
‘re-unification’ became possible, as signalled by the unification of Germany
within a European and Atlantic process and the return to Europe of
peoples who had been kept away from the heart of the civilisation to which
they felt they belonged – first by century-old events and subsequently by
Soviet domination.
The fact that countries subjected for almost 50 years to Soviet
domination and the straitjacket of centrally-planned economies were
actually able to restore representative democracy, the rule of law and the
protection of human rights and market economics were to a large extent
made possible by the support provided to their political and economic reconstruction – first by the promise of membership, and subsequently by
Europe’s concrete assistance as they returned to the fold. But the experience
was not equally positive for all concerned, which explains why further
enlargement is a contentious political issue in both new and old member
states, with criticism ranging from the rational to the visceral, from
nostalgia for the greater cohesion of the past and contempt for the red tape
and slowness of Brussels’ officialdom, to the revival of ancestral diffidence
vis-à-vis outsiders, and the nationalist and populist drives that have
resurfaced on the extreme political fringes of various countries under new,
often irrational and xenophobic guises.
2.
Recent admissions and new candidates
With the successful admission of neighbouring countries from north-west
Europe and the Mediterranean, the Union accepted into the fold European
THE ENLARGEMENT OF THE EUROPEAN UNION | 145
countries sufficiently similar to the founding members to be subsequently
absorbed into the European institutions – at varying speeds and intensities
according to the political, social and economic specificities of each new
partner – but with an approach marked by realism and cooperation.1
Coming from state-party regimes, command economies and statecontrolled production systems, they found it a challenge to reconstruct civil
societies, democratic and pluralist political systems with Western-style
parties and unions, public jurisdiction and administration, human rights
and environmental protection. Economically, they were as different from
the rest of Europe as they were politically and socially. While the Union’s
surface area and population have grown by about one-third with the
admission of Central and Eastern European countries, its GDP has
increased by only about 5%, and per capita income in the enlarged Union
has fallen by around 18%. These figures show that among the governments
and public of the ‘old’ Union, the ethical and political aspirations that
drove enlargement outweighed all considerations of national selfishness
and accounts-based resentment. These resurfaced with a vengeance in the
two referendums and are paradoxically also emerging in the more recently
admitted member states with regard to new candidates.
Central and Eastern Europe presents a diverse and varied picture, in
which commendable and laborious progress has not been linear. Initially
the larger countries, with national income levels that stood at around 40%
of European averages, recorded faster growth rates than the older Union
members – and (with the exception of Hungary) also showed acceptable
macroeconomic outcomes and positive structural adjustment, in
conjunction however with high unemployment rates (above 15% in Poland
and Slovakia) – and attracted significant flows of foreign direct investment
(Dlouhy & Emmott, 2006).
While some new members achieved clear political and economic
progress, the larger countries’ initial economic progress was not matched
by overall stability in the political structures of their recent democracies: in
actual fact, the establishment of post-communist public order appears to
have made both citizens and domestic political systems prone to
widespread restlessness that has at times erupted into loud protests,
rocking local political systems. Instability has already raised issues of
1
See Nugent (2007) for the enlargement sequence.
146 | CANGELOSI & SALLEO
governability in many of the Union’s more recent members and if
uncontained by systematic dialogue, may well worsen these countries’
general and specific economic vulnerabilities and whittle down the
comparative advantages (low labour costs, high levels of technical
education, young executives) which the Central and Eastern European
countries have so far used to boost exports and attract investment from
other, offshore Union members. Today there are fears that the inflows of
foreign currency that bolstered public accounts may dry up, leading to
major financial imbalances.
Following the adaptation period heralded by the introduction of
democratic institutions, signs of a revival of nationalism and populism are
now visible in several countries, which can only be considered as a retreat
from European ideals. By the same token, the fragilities and uncertainties
of several Central and Eastern European countries may make it difficult for
them to stay the course of the progressively stringent rules for economic
and fiscal policy on which the development of the European process and
convergence of member states hinge.
In other words, after a promising start, the EU’s main new members’
convergence with the mainstream is now faltering. The picture today is
very different from that surrounding the entry of Central and Eastern
European countries, due to the no doubt overly simplistic expectations of
European public opinion and governments. The belief was that
membership in the Union would stimulate a linear political, economic and
social process with interdependent effects and beneficial outcomes for the
various components of each new member’s society. The process was
actually posited somewhat abstractly as a kind of paradigm for
forthcoming admissions – currently in abeyance – but evidence drawn from
the experience of recently admitted members sheds doubt on its validity.
Consequently, insofar as new candidates are similar to recently admitted
members, decisions concerning their entry and the conditions to be
attached to accession agreements will also be scrutinised on the basis of
lessons learnt from the larger countries in the 2004 batch, filtering out
external factors and the impact of the global economic situation in assessing
their respective results and progress.
Although the various enlargement negotiations have so far been
formally framed on the basis of considerations specific to each case, it is
from a general political standpoint that Europe must contend with a series
of decisions on enlargement that affect its whole edifice. In actual fact, as a
THE ENLARGEMENT OF THE EUROPEAN UNION | 147
result of the momentum built up with the 2004-07 big bang, the approach
to future enlargements to the Western Balkans and Turkey has already
been sketched out, despite underlying controversy, currently expressed in
stronger terms and more openly than before. The generous idealism
underpinning such decisions failed to take into account that recent
experience has shown the need to base the process on a thorough
assessment of actual circumstance; in addition, the Union’s growing size
has gradually begun to tell on its shaky structures, already in need of an
overhaul if they are to provide effective governance for the current
membership of 27. In any case, voters in current member states will need to
be convinced of the desirability of further enlargements. In the meantime,
momentum has clearly waned as the constitutional standstill has halted the
enlargement process and forced Europeans to be more realistic in assessing
the gist of the venture, i.e. which Europe do they want and what kind of
geographical, economic, political, cultural and social configuration would
best suit their goal. Conversely, should the minimalist approach win out,
European construction will perhaps require adaptation to accommodate
future enlargements.
3.
The Western Balkans
Problems related to Europe’s external relations and security are among the
most pressing issues concerning the enlargements temporarily on hold.
First and foremost among these is the stabilisation of the Balkan region,
which occupies a geopolitical position of great strategic significance at the
very border of the Union. The Western Balkans, which encompass
Macedonia, Serbia, Albania, Montenegro, Bosnia-Herzegovina, Kosovo (the
latter two having a hybrid state structure) and Croatia, which is close to
concluding its own negotiations and is a different case, occupy a territory
that is wedged deep into the Union and, as far as we are directly
concerned, contiguous to Italy, from which it is separated by a narrow
stretch of sea. There is no need to stress how important the stability,
security and prosperity of this region is for Europe (and particularly for
Italy). Mindful of the recent post-Yugoslav wars and their effect on Europe,
one needs to be aware of how porous the borders separating the Western
Balkans from the Union are – particularly with the free circulation of
people that applies in the contiguous area of the Union under the Schengen
agreement. We also need to be aware in general terms of the potential
‘contagion’ of political instability and insecurity that can, through
metaphorical osmosis, transfer problems across borders just as stability can
148 | CANGELOSI & SALLEO
sometimes channel success. The Western Balkans are actually an
historically and ethnically diverse region, made up of countries that have
difficult relations with each other, most of which are small and unstable,
imbued with nationalism – even sub-ethnic nationalism. They are still
wounded by the memory of a recent bloody past and worried by the multiethnic make-up of the region and the national and religious minorities it
has harboured for centuries – the Islamic presence is a case in point. Their
institutions are often untested and their political structures fragile; there is
no reliable rule of law or protection of civil rights, internal security is shaky
and their economic dimensions are far from optimal. Their economies are
perhaps not even viable because of fragmentation, as illustrated by
inadequate, incomplete and un-integrated infrastructures. Finally, they
have high unemployment and low per capita income, even compared with
the rest of the Balkans.
The most important of the region’s countries, Serbia, has also fallen
prey to nationalism. It is economically backward, politically divided and in
addition still entangled in a contentious relationship with the Tribunal
established by the United Nations in The Hague to judge crimes committed
in the post-Yugoslav war, which has been demanding that Belgrade hand
over the Bosnian Serb criminals to be brought to justice. Most of all, it is in
the throes of political upheaval at the idea of losing Kosovo, that ‘cradle of
the Serb nation’, an inevitable territorial mutilation that it cannot bring
itself to accept.
Bosnia – which to all intents and purposes is divided between a Serb
‘republic’ and a Croat-Muslim ‘federation’ – and Kosovo are still under
international protection with a significant military and administrative
European and NATO presence, which has so far prevented worst-case
scenarios. Kosovo is also the focus of political disputes that led to
protracted arguments within the United Nations on the prospects and
terms of its separation from Serbia. The United States has recognised an
independent Kosovo as did many – not all – European countries despite
hesitation prompted both by fears of a chain reaction throughout the
former Yugoslav region and by national minority restlessness in Romania,
Slovakia and Hungary. Russia does not recognise Kosovo’s independence,
believing it will establish a precedent for restless nationalities within its
own borders, particularly in Chechnya, and has hit back in the separatist
regions of Georgia, i.e. Abkhazia and South Ossetia. In practice, Russia’s
veto has led to a deadlock that compelled the Kosovars to declare
independence unilaterally. An international group of experts has drawn up
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a ‘European’ roadmap bringing Kosovo and the whole region closer to the
Union, which includes guarantees of admission subject to the attainment of
political, legal and economic goals and the protection of the Serb minority,
but makes the prospect of entry into Europe an outcome applicable to the
Balkan region as a whole, at the end of a long-term process.
Can Europe whole-heartedly welcome into its midst and absorb
within an acceptable timeframe a group of peoples and societies so foreign,
complex and dangerous and at the same time so close geographically? Will
the citizens of the prosperous and distant North accept these new and, for
them, incomprehensible and rowdy ‘new Europeans’? Will it be possible to
make room for them within common institutions geared to achieving the
integration called for by the pro-Europeans, or should one devise some
other compromise and pay the price in terms of European political
cohesiveness and institutional progress? Will this not deal a final blow to
the principle of deepening as a condition of widening? On the other hand,
all governments are aware of the dangers that continuing instability in the
Western Balkans poses for the Union’s equilibrium and international role.
They know that matters may worsen further if the Union rejects these
countries and that there are in any event real risks of deterioration that may
go as far as the re-eruption of only recently quelled local conflicts. The
insecurity and political unrest of the 1990s, the horror of the post-Yugoslav
wars, and the massacres and repressions committed at the Union’s borders
are still alive in our collective memory. Large segments of European public
opinion as well as political leaders and decision-makers are now
wondering what methods could be adopted, how much time would be
required and what kind of Union status could be conceivable for these
countries, and which compromise solutions could realistically be advanced
without endangering the pursuit of Europe’s grand design. The time factor
that appears to dominate possible developments in the Western Balkans
inherently and strongly defers the basic dilemmas of enlargement: it may
actually turn into a factor for stability over and beyond current issues of
Union development, as well as a major obstacle to much-needed
clarification between two basic visions of Europe.
4.
Turkey
Security of the Union’s Eastern borders leads us to the complex issue of
Turkey, NATO’s Anatolian bulwark, abutting onto the Near and Middle
East countries, the Caucasus and Central Asia, while directly bordering
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Iran, Iraq and Syria. Looking at Turkey’s geopolitical position recalls the
opposing arguments that have always been advanced with regard to
Ankara’s entry into Europe. While it is natural for a political and military
alliance to have a common border with potential adversaries, it is much less
so for an innovative political and economic union, an integrated society
designed with the special features and purpose the community of
European peoples are committed to developing.
Several contradictions are inherent in Turkey’s current political and
cultural situation: a Muslim country with the history and tradition of a
great power, with a capable establishment, Turkey has made considerable
efforts to adapt to the Copenhagen criteria and implement the civil
liberties, human rights and transparency provisions the Union requires its
candidates to embody in their laws and everyday practice, although much
remains to be done.
It is true that admitting Turkey would show the Islamic world that
Europe is not an exclusively Christian club and is open to peoples of all
religions and cultures. It is equally true that Turkey is also a political and
cultural bulwark against radical Arab Islam and a concrete demonstration
of the viability of a secular and democratic Muslim state, although its
Kemalist secularism is guaranteed by the not particularly democratic
supervision exercised by the military high command over Ankara’s civilian
power, which recent elections have clearly handed over to an Islaminspired party. In addition, from a geopolitical standpoint, should the
Union extend its borders to the Near East, the most unstable and turbulent
area of the Mediterranean, it would find itself directly involved in the said
area’s endemic crises and regional conflicts, which are not just territorial
and political, but also economic – relating as they do to energy and water
supply – as well as ethnic and cultural. If Europe were to admit Turkey and
extend to the conflicting states’ borders, it would somehow become a party
to matters there, and in so doing lose its ability to act as an intermediary
and broker of agreements, a role it rightly aspires to and which in practice
it has so far been denied.
Another point to bear in mind is the regional perspective as seen
through Turkish eyes, even disregarding traditional ‘pan-Turkic’
aspirations towards Central Asia. Turkish pride often spills over into
nationalism, as demonstrated by recurring and bitter arguments on the
long-standing issue of the Armenian genocide perpetrated by the Ottomans
and to date obstinately denied by Ankara. Furthermore, a much more
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topical issue, that of the Kurds, has recently acquired a higher profile in
Turkey’s international political and military stance, as well as in domestic
policy, with threats of military intervention to destroy Kurdish terrorist
bases located in the north-eastern provinces of Iraq (and actual raids took
place), a prospect that has aroused deep concern in Washington as well,
insofar as it could lead to Mesopotamian Balkanisation. For although Iraq’s
possible disintegration conversely highlights the relatively good
performance of self-governing Iraqi Kurdistan, this in itself contains the
seeds of destabilisation for south-eastern Turkey where a Kurdish
population harbours hopes of an independent Kurdistan and can feel the
attraction of the statehood their fellow Kurds, on the other side of the
border, have been informally but effectively enjoying, counting as they do
on a division of Iraq into three separate entities.
In any case, what with the institutional standstill, the postponement
of negotiations on several ‘chapters’ for which criteria implementation was
deemed inadequate by Brussels, followed by the recent re-opening of
negotiations on three, as well as the very modest progress achieved in the
Cyprus issue (still outstanding through the fault of both sides and of
Europe itself imprudently admitting Nicosia to the Union prior to the reunification of the island planned by the United Nations), Europe’s
relationship with Ankara is in a state of uncertainty marked by mutual
recrimination. In both Europe and Turkey, those hostile to Turkey’s
accession to the Union – even played out over a lengthy process and
postponed by a decade at least – have recently gained new strength.
Following the two referendums, as pointed out earlier, domestic
political considerations have weighed in more heavily on all issues
concerning the Union and in particular on enlargement: their impact is
even stronger with regard to Turkey than it is for the Balkan candidates.
There are renewed fears over the possible entry into Europe of 70 million
Muslims and the integration of an economy which, although dynamic,
remains very unbalanced; which has shown strong growth but is still far
from the income levels prevailing in Europe, even compared to the ‘ten’
who entered in 2004 (but not Romania and Bulgaria); and which is saddled
with high inflation and recurring financial imbalances. In addition to this
Turkey would potentially elect the largest national representation in the
European Parliament.
Furthermore, Sarkozy, who had already spoken out against Turkey’s
accession during the presidential campaign, has reiterated his grave
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doubts, which boil down to outright opposition, and are redolent of
Chirac’s earlier pledge to submit any treaty of accession to a referendum.
Chancellor Merkel has expressed a strong preference for establishing a
special relationship with Turkey rather than granting it membership.
Conversely, London and other minimalist countries are in favour of
admitting Turkey with the guarantees provided by a lengthy process and
verifiable targets. All in all, several countries would appreciate alternatives
to full Turkish membership, but Ankara has so far refused to entertain
these possibilities.
5.
The borders of Europe
On the whole, alongside recurring references to compatibility and
convergence among economies, integration of tax and corporate
regulations, standards extension and the adoption of broad European
policies, discussions on enlargement are currently increasingly dominated
by problems and questions that are essentially political, cultural and
psychological. After two periods of geographical expansion, the first driven
by geopolitical concerns with the pursuit of stability and balance in the
Western part of the continent, and the second powered by the emotional
and cultural thrust to recover Eastern Europe, the new accessions are now
considered in light of Europe’s own strategic interest and how it can
realistically work towards the goals it has set itself. Bearing this in mind,
discussions on the limits and borders of Europe, often deemed an exercise
in pure speculation, appear increasingly meaningful. Europe’s external
borders and its identity, the Union’s institutions and a common vision of its
role in the world, internal compatibility among members and compliance
with the duties, rights and values of a community of fates, all make up a set
of interdependent issues that cut across both institutional and
organisational dimensions and the issue of geographical make-up.
There is an understandable reluctance to discuss Europe’s external
borders in current terms, not only because Europe itself is extremely hard
to define, beyond the borders traditionally plotted by geographers and
historians, but also because there is a reluctance to draw lines that would
exclude countries with which there are often deep and cooperative
relations or cultural proximities. Another reason to refrain from defining
frontiers is an awareness of the interdependence specific to today’s
globalised world, amid the decline in exclusive state sovereignty and
jurisdiction, and the intrinsic porosity of contemporary borders.
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From a political and cultural standpoint, any attempt to mark out an
external border might seem to imply that Europe really wants to define
itself by contrast to those beyond its borders, who are ‘other’, in a revival of
the ancient Hellenic dichotomy between ‘us’ and ‘them’ (Gress, 2004). In
economic terms, borders conjure up external tariffs and the restrictions that
were ubiquitous until quite recently, feeding recurring bouts of
protectionism, and that still pursue us from one trade round to the next.
Finally, borders revoke the concept of security: a very clear point is made
by laying down a border in the real sense of the word – a line where
external defences, the walls protecting a given demos are traditionally
placed. Nor should one overlook the sacred and almost timeless character
extended to the concept of border by the political, cultural and also
geographical shape given to Europe in 1648 by the Treaties of Westphalia,
at the close of a series of conflicts that climaxed in the Thirty Years War and
brought to an end a lengthy period in which sovereignties of various kinds
and strengths had co-existed, overlapped and intersected.
On the other hand, can one really avoid an issue as basic as the
definition of a clear external border, more grounded in recognisability and
fellowship than in geography? However much trust one may have in the
demiurgic nature of the force des choses, is it really thinkable to leave the
definition of Europe’s borders to unfurling events, external and random
factors, or the slippery slope of Brussels bureaucracy when one knows how
vague the original treaty was in limiting eligibility to Community
membership to European countries – without however attaching the map?
Today there is widespread popular demand for clear borders and the
territorial definition of what is to become Europe: the question is not just
where and how the European edifice will be completed, but also in which
terms and with which features its boundaries will be established. In the
end, the Union’s enlargement policy will have to meet public demand: it is
axiomatic that in a democracy government decisions have to be guided by
due consideration for the attitude and will of the people.
Europe’s external borders are first of all defined by two political
benchmarks, the external and the internal. The external or ‘foreign policy’
benchmark corresponds to a comprehensive dimension covering Europe’s
security, the protection of its interests, the scope of its interventions and the
foreign policy the Union wishes to uphold in a multi-polar scenario, as well
as the political image it wishes to project in its relations with major entities
such as states and intergovernmental organisations or the bodies and
sometimes informal entities spawned by globalisation. Without entering
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into debates on soft and hard power and their relative effectiveness, or their
recommended mix in the management of international relations, one
should point out that Europe currently projects itself mainly through its
political and social decisions. Europe’s main features are a mature and
participatory democracy, the rule of law and the upholding of civil liberties
and human rights, tolerance and pluralism, the pursuit of prosperity
combined with social justice, freedom of enterprise and trade, the defence
of European security and a commitment to peace, the advocacy of
multilateralism on the basis of agreed rules, a humanistic vision of relations
between states and the belief that aid to poorer nations is a prerequisite for
world stability and security.
Adequate political, economic and military resources will have to be
made available to this end. Europe’s political strength derives from the way
in which it projects these values, as demonstrated by the attraction it
exercises globally, something that is perhaps more clearly perceived by the
outside world than it is within Europe, where debate is often glum,
negative, ‘declinist’ and tainted with ideology and scepticism. Europe’s
international stance is in any case the frame within which its short-term
goals are ordered: the pursuit of stability in contiguous European regions
and security along its borders with areas of deep unrest. As stated earlier,
future enlargement is linked to these goals.
The ‘internal policy’ benchmark hinges on the institutional issue and
the inevitable adaptations its members, candidates, and the Union as a
whole will need to accept in view of the legislative, political, cultural and
value differences between candidate countries and the Union’s core
member states. This inevitably shifts the discussion back to the basic debate
underpinning the whole European process, from the Treaties of Rome to
enlargement, a debate featuring two opposing political views and focusing,
in the final analysis, on Europe’s very identity.
6.
Europe’s identity
In fact, looking beyond the slew of arguments and theories, what is at stake
in Europe’s political debate on institutions and enlargement is basically its
very identity, insofar as external borders and identity are one and the same.
This is an inescapable issue, not only because it is clearly defining for the
overall European design, but also because principles of democracy and
political caution require that it be put clearly to the peoples of Europe,
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regardless of whether accession treaty ratification is entrusted to
parliaments or referendums.
One can easily argue that deliberate vagueness on issues of European
identity was a decisive factor in the French and Dutch rejections, as pointed
out in the interpretative controversies and ex-post rationalisations that
followed the referendums. The controversies were fuelled by a number of
biases, either genuinely felt to be important, or stemming from overly
simplistic argumentation – inter alia because of a lack of communication on
the part of national governments and Brussels – or from yet other
controversies based on reasoning and arguments echoing ancient
misunderstandings. Alongside reasons of a general nature – a
disappointment with Europe voiced by those who seemed unable to recall
the distressed circumstances of yesterday from their current position of
prosperity largely ascribable to progress achieved by the whole continent,
or growing hostility to the Commission’s perceived over-regulation – one
prominent and widespread feeling was so-called ‘enlargement fatigue’, a
dwindling belief in the ideal, a lack of trust in the future, risk aversion and
a set of fears linked to enlargement. Today, other member states have
followed the French and the Dutch, months after the fact, in expressing
anxiety at the idea of letting into their common home other poorer and
politically unstable countries, economically weak and lacking in
infrastructure. There is also dread of a massive inflow of immigration (the
‘Polish plumber’), fear that new members will be granted priority access to
structural funds that will end up being directed to their poorer regions, as
well as lurking trade protectionism, ever suspicious of whoever manages to
produce more competitively. And to that one must add a visible concern at
the ‘otherness’ of Islamic values and the Muslim way of life, as compared
with European traditions.
Beyond these specific reasons, the underlying cause for rejection
seems to be a deep and widespread fear of what the Germans call
Entfremdung, the loss of identity. For Europe, a voluntary union of different
peoples and states that have decided to share a large part of their
sovereignty, modern self-awareness does not equate identity with race or
unifying ethnicity, any more than with geography, language or religion.
Europe includes countries with a clear awareness of their identity but
where a number of different languages are spoken, elsewhere languages
and cultures spread beyond national borders, people share a language and
a culture but not a religion, states have lost or gained vast territories and in
the process suffered losses and taken in refugees or moved into new lands,
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and yet their identity has remained unchanged. These are all-important
ingredients in a people’s self-awareness and self-image, whether true or
distorted by legend, and therefore an integral part of their self-perception
(Barzun, 2000; Le Goff, 2003). Further basic components of identity are a
common history and great and illustrious traditions, often tragic and
weighty – with the seeds of war, misuse of power and disaster – to be
prevented.
Since the Enlightenment, there has been a growing awareness that the
keystone of social groups’ ‘republican’ (Viroli, 2002) identity is their
decision to live together, that conscious will of citizens, that ‘everyday
plebiscite’ referred to by Ernest Renan and others, that state citizens have
devised for themselves, the basic law of the country, the social contract and
the institutional arrangement consciously and freely chosen by the people.
In the case of Europe, where strong member state identities coexist with the
Union’s developing identity, the latter is particularly to be sought in the
‘comun diritto’ (or acquis communautaire) as expounded upon in this
volume by Mazzini. As it develops it will increasingly be embodied in the
Union’s institutions, its shared freedoms and duties, the common
principles and values around which the social contract and political
institutions have been shaped as well as in the Charter of Fundamental
Rights – which, despite having been legally sidetracked in Brussels, mainly
because of the United Kingdom, is still referenced in the Treaty. The
broader the range of human activity governed by common rules, the clearer
the borders of Europe will become to its citizens and the outside world.
In this sense, the issue of enlargement and institutions intersect each
other in such a way as to require that they be dealt with together.
Intuitively one sees that the Union will in any case require a clear definition
of its nature, its legal identity – the international personality of Europe has
been retained in the Lisbon text – through its institutional arrangements
and strategic goals, so that candidates can knowingly decide in what kind
of regulatory and organisational context they wish to view their future.
What is at stake is no longer simply accepting the acquis communautaire, but
rather finding a position within a specific institutional system, internalising
the consequences domestically, adapting laws and culture as required,
signing on to the sharing of a number of areas of Westphalian sovereignty,
and devolving allegiance for each of these to the Union or to the Union
component candidate countries are able and willing to adopt. The societal
paradigm deriving from this shall be based on a free and conscious choice,
while purely instrumental accession aimed at obtaining short-term
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advantages or striving solely for prosperity would soon lead to
dysfunctions that endanger the whole system.
Conversely, in deciding what type of Europe they want in the future,
members will have to consider future enlargement and have a basic idea of
the type of candidates they feel could be accommodated within their
geopolitical and ideal vision of the Union. We know that this will not be an
easy choice, considering the differences in approach upheld by minimalist,
sovereigntist and integrationist member states, so far reconciled by
deliberately reduced ambitions. It is also obvious that different countries
have different attitudes to the outside world and there is widespread
concern about the required ratifications. For this reason too, it would be
better to avoid confronting European states and peoples with a stark choice
between two extreme positions, in a take it or leave it alternative.
Candidate countries will also need to choose what kind of Union to accede
to or, put differently, which European identity they are willing and able to
identify with, and what timeframe and procedures they realistically think
they can commit to as candidates for accession, without running the risk of
being rejected, be it only by a single member state refusing ratification.
In view of the current standstill, one wonders whether it was wise to
put the cart before the horse and give rise to unwarranted expectations.
One also wonders how much time we have left and how we should make
use of it. More importantly, what kind of complex diplomatic activity will
be required to prepare a resumption of enlargement while avoiding hasty
decisions that might damage European construction? Such haste might lead
to the possible rejection of countries drawn into ill-fated negotiations and
end up creating areas hostile to Europe at our very borders – an outcome
diametrically opposed to the original intentions of the Union’s
governments.
7.
Enlargement in 2009
Whatever one’s verdict on the Treaty of Lisbon, there is something of a
temporary nature to it, as in all compromises with built-in obsolescence,
because of the need to accommodate two visions of Europe that are
increasingly at odds. It is impossible to tell whether, with time, Europeans
will go for: ‘one’ European Union or several entities and bodies, concentric
or partly overlapping, a Russian doll or a set of different levels or different
‘densities’. Clearly if the Union were to be reduced to its lowest
denominator, a free trade area that would at best lead to a single market,
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this would mean one kind of pact, whereas a more markedly integrationist
model would entail something quite different. Concentric circles and
different speeds would require yet another approach, and a variable
geometry system or the hub and spoke model of enhanced structural
cooperation would entail something else again. Not to mention the
additional intricacies of opt-outs and other complex mechanisms. The
enlargement policy will have to adapt to these unknown quantities.
Approaches to negotiations and negotiation methods have also
undergone considerable changes following the European Council and in
view of the Lisbon Treaty. Even though its political significance has been
diminished by British reservations, in particular, and its terms of reference
are not clearly defined, the ‘long’ European Council presidency will
certainly play a leading role in the resumption of enlargement.
Furthermore, the new text of Article 49 of the European Union Treaty states
that in regard to eligibility criteria and procedures for accession to the
European Union, reference shall be made to the values of the European
Union and European states’ commitment to promote them. New Article 49
has also been made to include a pre-existing provision whereby the
European Parliament and national parliaments shall be informed of
membership applications.
There is also a new mention of the accession criteria agreed by the
European Council, as defined in Copenhagen in 1993 and modified in
Madrid in 1995. These require the presence of stable institutions
guaranteeing democracy, the rule of law, human rights, respect for
minorities and their protection (the political criterion); the existence of a
reliable market economy and the ability to cope with market forces and
competitive pressure within the Union (the economic criterion); the need to
accept obligations deriving from accession, and in particular the goals of
political, economic and monetary union (the community acquis criterion).
For accession negotiations to begin, the political criterion must be met.
Amendment of the criteria by the European Council therefore requires
unanimity. These changes will have an impact on the Union’s very ability
to define its own boundaries and in many respects will provide an implicit
response to the call for clear border definition. Within the complex system
of international relations, the type of interaction between the High
Representative (the de facto Foreign Minister, who will also be VicePresident of the Commission) and the Commissioner responsible for
enlargement remains to be seen. The matter is not simply one of form, as it
raises the currently very sensitive issue of relations between Council and
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Commission, where the balance has so far fluctuated over time depending
on the personalities involved and the political positions prevailing in
capitals, not to mention the need to adapt in terms of timeliness and
geopolitical analysis to the complex relationship between foreign policy
and new member admission.
8.
After the Lisbon Treaty
Confidence in the ability of candidate countries and their citizens to move
closer to the European Union and its political and economic standards
seems to suggest that the intermediate stages of the process leading to full
membership can be outlined. In order to manage enlargement realistically
while avoiding the dual pitfalls of total closure – for which time has
probably run out – and of a complete watering down of the European
concept into a mere economic area, what is required is an approach that
combines stringent compliance with the requirements for full membership
in Europe on the part of candidates able and willing to do so, and the
possibility of alternative flexible or partial models of participation in the life
and activities of the European Union. These could include a vigorous
‘neighbourhood’ policy as well as initiatives under consideration for the
Mediterranean area, an area of free circulation as well as open-ended
enhanced cooperation or closed initiative-based groups, all of which,
however, would be connected with the core institutional set-up.
Regarding cooperative relations with contiguous regions, the
Mediterranean should be returned to its central place in European policies,
which currently seem to lean increasingly towards the East and the
Caucasus as a result of biased or short-term perspectives likely to involve
Europe in areas far removed from its centre of gravity. After the failure of
the Barcelona process, a strengthened Mediterranean policy requiring
innovative fleshing out to overcome the predictable reservations of many
members would restore some balance to Europe’s geopolitical position and
help the Union consolidate its interests in contiguous regions. The prospect
of a structured Euro-Mediterranean organisation begs the question of
whether this should entail an alternative status for some of the enlargement
candidates so as to connect them in a stable but evolving manner to
Europe.
Despite its many limitations, the Lisbon Treaty, which although
simplified does preserve the essence of the Rome text, could signal an
intention to move together towards greater integration, at least among the
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able and willing, as long as the good faith of its signatories is more robust
than that of those who signed in Rome. For the time being it would appear
that we have dispelled the prospect of a neo-sovereigntist victory – with its
advocates not only in the East but in Paris as well – and avoided a
resurgence of British minimalism.2 The upcoming British elections will tell
us more.
Interests may however yet splinter not only politically but also in
terms of greater single market design. Without stronger institutional
power, this market might become a wholesale battleground or the premise
for an unregulated free-for-all; instead of a market-place coordinated by
competition, a locus of substantive anomy that would only benefit the
strongest. If that were to occur, launching a two-speed Europe would
become the only solution for those who feel more integrated and effective
policies need to be developed around the central core represented by the
Eurogroup.3
2 The positive aspect lies in the fact that the most significant aspects of the
Constitutional Treaty have been retained: in particular, the legal personality of the
Union, the Minister for Foreign Affairs (although the term used will continue to be
High Representative), the European External Action Service, permanent structured
cooperation in the defence sector, a stable European Council president, the Charter
of Fundamental Rights (despite waivers for the UK), the extension of majority
voting, voting modalities (dual majority as of 2014), the hierarchy of rules, the
elimination of the ‘pillar’ system, the new policies.
The negative aspects are first and foremost the definitive abandonment of the
term Constitution, of the Union’s symbols (flag, hymn, motto) and the various
concessions granted to the Poles, the British and the Dutch in order to reach an
agreement. Particularly regrettable is the removal from the text of the primacy of
Community law and its transfer to a declaration by the Inter-governmental
Conference to be attached to the Treaty; the decline in the Commission’s powers of
initiative following the strengthening of the principle of subsidiarity and the power
granted to national parliaments to challenge Commission proposals, greater
rigidity in conferring new competences to the Union and the possibility of
renationalising common policies. Equally noteworthy: the opt-outs granted to the
UK and Ireland in the judicial and home affairs sectors, and the special system
whereby the Charter of Fundamental Rights will not be fully applicable with
regard to the UK and Poland (although Poland’s position might change as a result
of recent elections there). The IGC also granted the UK the unprecedented
possibility of opting out from the acquis of the so-called ‘third pillar’ if, after a
3
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The common institutional system, Europe’s main heritage, will in any
case need to provide assurance against an à la carte Union, overseeing the
special formulas worked out among members and protecting instead the
overall grand design. In this perspective, the enlargement policy will to
some extent be a litmus test of whether the minimalist outlook or the
outlook supporting gradual political integration will prevail. Those
institutions that stand at the cusp between membership and various forms
of association and which coordinate and provide consistency to the
system’s various component parts will therefore require strengthening.
How the Union moves towards an institutional arrangement that meets
today’s needs and allows for progress towards integration will in turn be
influenced by whichever concept of enlargement prevails – not in abstract
terms, but with specific political reference to current candidates and others
that can realistically be considered as prospective partners in the European
venture.
References
Barzun, J. (2000), From Dawn to Decadence, New York: Harper & Collins.
Dlouhy, V. and B. Emmott (2006), “The Vulnerable Success of Central and
Eastern Europe”, in Gazeta Wyborcza, Warsaw, 9 October.
Gress, D. (2004), From Plato to NATO, New York: The Free Press.
Le Goff, J. (2003), L’Europe est-elle née au Moyen Age?, Paris: Seuil.
Nugent, N. (ed.) (2007), European Union Enlargement, The European Union
Series, Basingstoke: Palgrave Macmillan.
Viroli, M. (2002), Republicanism, New York: Hill and Wang.
transition period, the country were to decide against being subject to the power of
the Commission and the Court of Justice in this area. Finally, following a French
request, competition has been deleted from the list of Union goals and transferred
to a protocol annexed to the Treaty. As far as voting procedures are concerned, the
dual-majority system – again following Poland’s request – will enter into force in
2014, with a transition period running to 2017 and with a strengthened safety net
(the so-called Ioannina compromise, to be defined by an ad hoc decision, subject to
amendment or revocation by European Council consensus decision).
9. EUROPEAN DEFENCE OR DEFENCE OF
EUROPE?
ALESSANDRO PANSA
1.
The institutions: A past of great hopes, a future with no illusions
Europe’s commitment to defence and security dates back a long way and is
also a recent phenomenon.1
It dates back a long way as the attempt to create a European Defence
Community (EDC) arose in the 1950s in response to US pressure (plus ça
change…), but was abandoned in 1954 when it failed to obtain ratification
from the French Parliament.
It is also recent, however. Following lengthy discussions and the
creation of institutions with little political and military importance, it was
only in 1999 that the European Security and Defence Policy (ESDP) was
created. Even now, European defence capabilities are still being
implemented (some are still at the assessment stage).
The concept of European defence is closely linked to the issue of
sovereignty, part of which must be ceded in any joint security initiative.
The failure of the EDC – perhaps a too ambitious project for its time –
led to the abandonment of attempts to limit the sovereignty of countries
and to create an ‘organic’ European structure using a problem-based
approach, much favoured by Jean Monnet. Thus the issue of European
defence was not discussed for a long period.
NATO was at that time responsible for European defence, based on
the collective defence principle set out in Article 5 of the North Atlantic
Treaty. After the EDC failed, the call by the Eisenhower administration for
1
On this subject, see Missiroli & Pansa (2007).
162 |
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 163
a European defence angle was superseded by the creation, following a
proposal by the UK, of a new organisation: the Western European Union
(WEU). The WEU had little political and military importance, but it did
create an agency for armaments cooperation, the Western European
Armaments Group (WEAG).
The role of NATO has always generated a great deal of debate ever
since President Charles de Gaulle’s initiative in 1966 to withdraw France
from NATO’s integrated military command structure in peace time, in
support of a European defence structure independent of NATO, while the
UK remained loyal to the idea of a North Atlantic alliance. These actions
gave rise to the complex situation that still influences European decisions
today.
At the end of the Cold War, the changed international situation
provided an opportunity to go down the path of a common security and
defence policy; it was time to reorganise NATO, which until then had been
based on the defence of European territory against the Soviet threat.
Moreover, in 1991, the first Gulf War highlighted the inadequacy of
European armed forces compared to the technological capabilities and
projection of the United States, while the start of the war in the Balkans
highlighted the issue of European intervention in crisis-hit areas. The need
thus arose for European military capacity to enable it to intervene beyond
its borders in support of humanitarian assistance.
The European Union’s Maastricht Treaty in 1992 created the
Common Foreign and Security Policy (CFSP) – the second pillar of the
European Union – as well as the first draft of a defence policy. The CFSP
represented a compromise between the positions of France, Germany and
the UK. While France and Germany supported the need for a common
policy, the UK did not want to create competition with NATO. The result
was that the CFSP had many good intentions, limited instruments, but no
military capability. The Treaty declared that the CFSP included “the
eventual framing of a common defence policy which might in time lead to a
common defence” (Article J4). The WEU, meanwhile, was responsible for
defence.
To achieve a common defence, NATO had to become more European.
The North Atlantic Council that was held in Berlin in June 1996 advocated
the creation of a European security and defence identity within NATO.
Agreement was reached on measures to grant planning capacity, military
capability and the use of NATO commands in favour of the WEU for
164 | ALESSANDRO PANSA
military missions of crisis management. President Jacques Chirac therefore
decided on France’s partial return to NATO’s integrated military
command. But controversy on the appointment of a European commander
to the NATO command AFSOUTH in Naples2 blocked France’s definitive
return and any hopes that the alliance would become more European.
The WEU therefore again formed the nucleus of a European ‘armed
wing’. The Amsterdam Treaty in 1997 provided for the incorporation of the
WEU into the CFSP, the inclusion of the Petersberg missions (humanitarian
and rescue, peace-keeping tasks and tasks of combat forces in crisis
management including peace-making) and the possibility of reciprocal
cooperation between member states in the armaments sector.
From this came the beginnings of multilateral cooperation in the
armaments sector. In July 1998, France, Germany, Italy, the UK, Spain and
Sweden signed a Letter of Intent with the aim of restructuring the
aerospace and defence sector; while in September 1998, France, Germany,
Italy and the UK founded the Organisation for Joint Armaments
Cooperation (OCCAR) to manage joint industrial projects.
The arrival of Tony Blair in Downing Street in 1997 paved the way for
a reconciliation with France and a more credible European defence policy,
given that the new British prime minister seemed to be in favour of
European integration, which he considered an unstoppable phenomenon.
The first step towards a European Security and Defence Policy was
taken at the Franco-British summit at Saint Malo in December 1998, where
it was proposed that the EU must have the capacity for autonomous action,
backed up by military forces, in order to respond to international crises.
The word “autonomous” was chosen as a compromise between the
positions of France (“independent”) and Britain (“complementary to
NATO”).
There was, however, agreement on one issue: Europe needed a
strong, competitive industrial and technological defence base. The
agreement between France and the UK was a necessary but not sufficient
condition: external events also contributed to the creation of a defence
policy.
2
See Dassù & Menotti (1997).
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 165
1999 was a decisive year. NATO intervened in Kosovo in March, and
the failure of the Rambouillet agreement again convinced Europeans that
the capacity to use military intervention as well as diplomacy was needed.
The aerial campaign once again showed how Europe as a whole was
technologically inferior to the US.
The Cologne European Council meeting in June established the first
principles of the ESDP, incorporating the decisions taken in April at the
North Atlantic Council in Washington, which – as previously established
for the WEU in Berlin in 1996 – extended access to NATO capacity by the
Union for autonomous European3 missions according to the formula
subsequently renamed the ‘Berlin Plus’.
Concrete objectives for autonomous capacity were established at the
Helsinki European Council meeting in December 1999: the Helsinki
Headline Goal required member states to make 60,000 personnel available
for Petersberg missions by 2003.
The ESDP inherited the WEU’s crisis management systems. In
October, as stipulated by the Amsterdam Treaty (Article J8), Javier Solana
was appointed Secretary-General of the Council and High Representative
of the EU for the CFSP. He also became Secretary-General of the WEU. It
was decided that the WEU would cease its activities by July 2001 and
transfer to the European Union its functions and organisations, with the
exception of the WEAG, which would remain active for the time being.
This development began to meet with early success: in the ‘Force
catalogue’ – prepared at the conference on military deployment in
November 2000 – some 100,000 men, well in excess of the stipulated 60,000,
were made available by the member states for the Helsinki objectives. In
December 2000, the French Presidency approved the Treaty of Nice, and
defined the Berlin Plus agreements and the politico-military structures of
the ESDP. The Capabilities Improvement Conference of November 2001
instituted a European Capability Action Plan (ECAP) to bridge the gaps in
military capacity, thereby rationalising member states’ defence
programmes.
Washington Summit Communiqué, NAC-S(99) 64 of 24 April 1999 (available on the
website www.nato.int).
3
166 | ALESSANDRO PANSA
The year 2003 was critical for the ESDP. In January the first mission
(the European Union Police Mission, or EUPM, in Bosnia-Herzegovina)
was launched, while the start of the first military mission (Concordia in
Macedonia) in March was made possible by the implementation of the
entire package of Berlin Plus agreements via a framework agreement
contained in an exchange of correspondence with NATO. However, in
order to respect the civilian nature of the organisation and avoid
controversy between member states, most of the ESDP’s missions are still
non-military, such as police missions or the restoration of the rule of law.4
The European Council of December 2003, which ended the six-month
term of the Italian Presidency, was a decisive moment for the future of the
ESDP, which saw the adoption of the European security strategy, “A secure
Europe in a better world”, drafted by the Solana administration. This
represented a genuine strategic conception of the identification of
scenarios, threats, objectives and concepts for the ESDP.
It is opportune to note that this Council is mainly associated with the
breakdown in negotiations to finalise the Constitutional Treaty. The
unsuccessful attempts to implement the treaty have parallels with the EDC.
As is well known, the treaty was redrafted by the European Convention
(Convention on the Future of Europe) and amended by the member states
at the Intergovernmental Conference but was not approved, as anticipated,
by the December Council. It was then adopted in June 2004, only to be
rejected by the French and Dutch referenda in 2005. Following a period of
reflection of around two years, a new Reform Treaty was signed in Lisbon
in December 2007. The Treaty of Lisbon will come into force in December
2009.
The Treaty of Lisbon envisages the convergence of national defence
policies: member states no longer have the objective of developing a
common military capacity, but must make their national military
capabilities available to the European Union (Article 28A). The Treaty is
strongly inter-governmental; national security, in particular, is considered
to be the exclusive responsibility of individual countries.
See Alcaro (2006). For an up-to-date list of ESDP missions, see the Council’s
website (www.consilium.eu).
4
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 167
The Treaty of Lisbon seems to accord a greater role to NATO at the
expense of autonomous defence. NATO is still the bedrock of a common
defence for the allied countries. The Berlin Plus agreements are the pillar of
cooperation between NATO and the EU, and the Union’s best tool for
implementing a common defence and contributing to the restructuring of
NATO.
The Treaty of Lisbon preserves the main provisions of the ESDP
stipulated by the Constitutional Treaty, which are currently being
implemented by means of permanent structured partnerships such as battle
groups (tactical groups) and the European Defence Agency.
The idea of battle groups was first proposed in February 2004 by the
British, French and Germans as a package of autonomous multinational
forces of around 1,500 men to lead out-of-theatre military missions at the
request of the UN. Battle groups became operational in January 2007, and
the concept has been incorporated into the 2010 Headline Goal, the current
objective for military capabilities.
The European Defence Agency (EDA) – established by a Joint Action
of the Council of Ministers on 12 July 2004 – is tasked with supporting
member states in their efforts to improve European defence capabilities to
bridge any gaps identified by ECAP; to promote research and technology,
and to harmonise European purchasing, armaments policy and military
procurement. The Agency took over all the activities of the WEAG, which
ceased operations in 2005. It also liaises with OCCAR.
Is the Treaty of Lisbon a step backwards compared to previous
decisions? From a decision-making and legislative point of view, this is
undoubtedly the case. It talks about a common defence and ‘sharing’
security initiatives.
But it looks like a compromise – perhaps the only one possible –
between countries that have gradually developed differing perceptions of
the role, and even the ‘essence’, of Europe. It may be the only way forward
at a time when Europe seems less likely to be able to ‘lead’ Europe than in
the 1990s.
However, initiatives such as the creation of the European Defence
Agency is one of the positive results in recent years on the issue of defence.
As we will go on to see, this Agency can effectively be considered the
fulcrum around which a common military capacity can be built.
168 | ALESSANDRO PANSA
The Agency attempted to create a European defence procurement
market – using the 2005 procurement code of conduct – thereby increasing
competition and improving transparency in European procurement.5 The
Agency acts to improve the defence industrial and technological base, both
by preparing projects and strategies for research and technology and
through funding programmes, such as the Joint Investment Programme on
Force Protection, which is currently the only major joint programme. Many
of the initiatives proposed in the EDA’s documents remain on paper.
The European Commission has now issued an interpretative
Communication on Article 296 of the Commission’s paper6 – intended to
reduce the number of restrictions on competition that member states apply
in the sector, under the article – and in December 2007, published the
anticipated Communication on the defence package, the effects of which
have still to be seen.
The EU is finding its way again, but the European defence industry
must develop the military and technological capacity required.
2.
The industry: Oligopoly, foreign policy and internationalisation
Where and how does the European defence industry fit in the political and
institutional context that we have described? Does it have a future, whether
as a vital component of security policies or as an important part of Europe’s
economic and industrial landscape? And if it does, under what conditions?
To answer these questions, we have to first of all understand what we
are talking about: we should clarify immediately that the term ‘European
industry’ is an expression more of hope than of reality, as otherwise we
would talk about the ‘industry of European countries’. An industry that has
the characteristics of an oligopoly: 70% of defence systems worldwide
(which represent 1.2% of global GDP, or just over €400 billion in 2006) are
produced by the ten largest industrial groups, which operate in an
environment that is at the same time both cooperative and competitive,
The initial impetus came from the EU’s Green Paper, “Defence Procurement”
published by the European Commission, COM(2004) 608 def., 23 September 2004.
5
6 European Commission, European Commission Interpretative Communication on
the application of Article 296 of the EC paper on defence procurement SEC(2006)
1554; SEC(2006) 1555; COM/2006/0779 (definitive), 7 December 2006.
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 169
especially in Europe. Companies work together to develop technology and
products, but compete when marketing them.
Like all oligopolies, the defence sector has high barriers to entry.
These can be technological (acquiring expertise is a long and complex
process); financial (huge resources are required to develop, manufacture
and market products); and political/regulatory, since the authorisation
procedures, necessary to operate and to export, and contract negotiations
require extended timescales, as well as costly skills and resources. In
addition, the more powerful members of the oligopoly adopt strategies to
prevent new businesses entering the market (including acquisitions) or
assuming important roles and positions, which can lead to changes in the
rules of the game, and force the incumbents to review their manufacturing
and investment decisions. There are many such examples in the defence
industry.
Barriers to exit are equally significant. These are also financial in
character (adequate returns on investment in the sector are only realised in
the medium to long term) but also political/regulatory: a manufacturer of
products relating to national security – financed by public funding over
many years – is not in a position to exit the industry without incurring
costs. Similarly, it is inconceivable that a company’s shareholding structure
would be changed without formal and/or informal checks being
undertaken by the public administration.
The relationship with the public administration does not end there.
Since the end of the 19th century, the energy and defence sectors have
continually been the most important, listened-to and influential partners of
the governments of industrialised countries. But, while in the past,
government decisions and budgetary policies influenced industry, the
comparatively recent globalisation of production and the growing
informational asymmetry associated with increasing technological
complexity (which we will discuss later) mean that the sector is less
influenced by political decisions and more able to influence them. This is
particularly important for Europe, where industry can influence the
decision at either national or EU level.
The relationship with the public administration does not end there.
The relationship between industry, defence and industrial foreign
policy is equally important for the future of the EU.
170 | ALESSANDRO PANSA
The use of companies as a foreign policy tool by the governments of
large countries is well-known. Moreover, a strong, cohesive industrial
structure is clearly a powerful international policy tool. Medium-sized
countries with a significant industrial base are a very interesting case.
Foreign policy in these countries is, of course, based on compliance with
treaties, the management of partnerships and participation in international
initiatives: but it consists to a large extent of safeguarding the international
economic and industrial interests of its companies – so much so that the
foreign policy of these countries could be described as “made by
multinationals, backed to the hilt by their governments”.7
The body of interests to be safeguarded thus becomes crucial, and the
foreign policy of a country will vary according to the industrial nature of its
economy, and its international influence and role. The more technologically
advanced a country’s industry is and the greater its international influence,
the more the country’s industrial foreign policy is (or should be) geared
towards its companies in an attempt to influence the technological
standards of other economies, thereby having a lasting influence not only
on the production system of other industrialised countries, but also more
generally on the development model. This creates a virtuous circle between
the technological development process, and a country’s industrial policy
and foreign policy.
In this context, the importance of the defence industry lies as much in
its technological content as in the fact that its activity relates to a sector that
retains its own decision-making and technological models of production
systems, especially defence and foreign policy, long-term decisions and
models that could only be abandoned at great cost.
The defence industry is therefore a crucial element of a country’s
industrial foreign policy; but it is equally important for the development of
production systems in advanced economies, given its contribution to a
country’s technological assets. The ratio between R&D activity and
revenues in the industry is around 8%. Although not the biggest investor in
relative terms, the pharmaceutical industry is the only one that invests
more heavily than defence in absolute terms.8 This shows the importance of
7
See De Cecco (1998).
In the sense that sectors with a higher ratio between R&D and sales revenues post
lower revenues in absolute terms than the defence industry.
8
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 171
the absolute value of investment in research by defence companies, an
importance that is increasing due to the growing significance of dual-use
technology that has both military and civilian applications.
Moreover, there is a technology gap of 10 to 20 years biased towards
the West compared to defence systems developed in the rest of the world.
Some commentators maintain for example that Chinese military technology
is 20-30 years behind that of Europe and the US.9 Such a gap, together with
the low price elasticity of high-tech goods, makes defence-industry
products one of possibly the few areas where, in the long term, Western
economies enjoy a clear competitive advantage in exports compared to the
aggressive production and marketing of emerging economies.
The future influence and role of Europe’s security industry will also
depend on its ability to successfully ride out the ‘denationalisation’ of the
sector at various levels (technological, commercial, manufacturing and
shareholding), a process involving many factors: some exogenous and
others largely endogenous. Exogenous factors include the spread of
technology and changes in global demand for military equipment, while
trends in European military procurement policies would fall into the latter
category.
Up until the fairly recent past, the development of military
technology took place in locations and under conditions that allowed limits
to be placed on its use and forced innovation in the civilian field to take a
secondary role to that in the defence sector. The expansion of scientific and
technological expertise, the significant investment in technology in civil
industries (e.g. semiconductors, telecommunications, bio-engineering and
bio-genetics) and the increase in the skills base in many countries – due
both to the relocation process in some important sectors and the training of
new classes of technicians and scientists – set in motion the gradual spread
of military technology and a growing fusion of military and civil
technology. The much-feted concept of ‘dual technology’ is a clear
admission that military technology is no longer circumscribed knowledge.
Running alongside the ‘internationalisation’ of know-how is the
growing importance of changing global demand for military products.
Estimates agree on the growth of the latter, with some analysts putting the
9
See Bitzinger (2005) and also Stokes (1999).
172 | ALESSANDRO PANSA
real annual rate at 1.5-2% over the long term (from now until 2035-40). But
the main boost to growth in demand will come not from Europe or the US
but from two other groups of countries. The first is made up of the oilproducing nations (in the Middle East and Asia) that have to balance a
growing perception of geo-political instability with substantial trade
surpluses generated by high oil prices. The second group comprises the
three big non-Western economies: Russia, India and China. Budgets for
defence equipment are growing at more than double the rate in these
countries than in Europe and the US. Clearly, they are trying to secure
Western industrial technology through supply contracts, the acquisition of
shareholdings and the creation of joint companies.
The situation is therefore changing rather quickly. The defence
industry will never be global in terms of product standardisation or the
structure and localisation of activity: the technology and goods it develops
are considered too sensitive to be produced and marketed in the same way
to all clients. But the sector has rapidly evolved towards a ‘multi-domestic’
model, in which although there are still significant restrictions on the
circulation of technology and other limits on production standardisation,
companies derive an increasingly large share of orders from overseas
customers and tend to localise (if not transfer) some of their operations to
commercially attractive economies (i.e. to countries with large defence
systems budgets), which also have the appropriate infrastructure and highquality human resources.
The defence industry is thus experiencing significant and rapid
growth in competition (a word that was virtually unknown in that sector
until a few years ago) with companies facing pressure on prices, margins
and financial structures. In order to compete effectively, companies must
first obtain economies of scale and scope in the use of their manufacturing
base and technology (the home-oriented policies of the 19th century, known
as the piede di casa, still have some importance, despite globalisation).
Secondly, they must secure adequate access to the capital markets required
to finance strategic and industrial projects, which owing to their size and
technological content, are becoming increasingly costly. Such opportunities
are not open to European industry.
3.
Europe: Cooperation, inefficiency and nationalism
Many commentators maintain that European investment in defence
systems is insufficient, and there are probably good reasons to believe this.
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 173
Europe as a whole has the largest budget for investment in defence systems
in the world after the US (over €60 billion in 2008), but the industry is not
able to take full advantage of this due to the limited integration of the
procurement activities of the individual countries, which still make the
decisions and hold the purse-strings. In reality, the maintenance of cost
centres that are both limited in their financial capabilities and largely
independent from each other accentuates the effects of the relatively scarce
resources. The Centre for Defence Economics at the University of York
estimates that if the investment decisions of the six main EU countries were
integrated, savings of around €6 billion a year, or 13.5% of Europe’s total
budget for 2005, could be achieved: it would be as if Germany doubled its
investment in one fell swoop. It is by no means certain that the problem
could be solved through multilateral programmes, if it is true, as the
Swedish defence minister maintains, that defence programmes managed by
more than three countries are generally less efficient.10 Estimates put
efficiency losses associated with the different procurement systems and the
product differentiation required in multilateral programmes at around 23%
of output cost when two parties are involved in procurement. The figure
jumps to 30% when there are three. This is due both to the different
configurations required for the same product by individual countries and
the varied remuneration systems of production companies. The UK, for
example, uses ‘cost plus’ criteria aimed at minimising the business risk
borne by the contractor, which in turn will have fairly low profit margins,
after allocating a share of the profits to the client. Conversely, continental
European countries generally use ‘fixed price’ methods of remuneration,
which can theoretically lead to higher income for contractors in return for a
greater assumption of risk.
The disadvantages of the lack of integration (or the economic
advantages of a possible greater integration) therefore seem obvious. First
and foremost, it would lead to a more efficient use of financial resources.
The average return on invested capital for European companies is around
12%, which is higher than their cost of capital (8.5%) but lower than that of
their US competitors, whose average return is 16% and cost of capital
around 8%. This gap is partly due to the fact that US companies are able to
take relatively greater advantage of existing economies of scale in the
10
See Pansa (2002).
174 | ALESSANDRO PANSA
industry and partly because they do not have to find complex and costly
corporate structural solutions or accept sometimes inefficient compromises
in production structures in order to manage the funds of several countries
relating to specific programmes.
Moreover, the relatively limited return on assets means that it is less
efficient for European companies to obtain funding from the financial
markets. In reality, this fundamental springboard for development is not
generally accessible to many European defence companies, as their
shareholder structures do not allow them to raise large amounts of risk
capital on the market. This is often the norm with government-owned or
family-run companies, but is even more specific to French companies (the
cornerstone of any likely reorganisation of European industry), which are
bound by a shareholder structure chiefly designed to prevent them from
being taken over.
The integration of both procurement and industrial activity is a vital
element for any European ambitions regarding defence policies. It goes
without saying that this could not be efficiently undertaken without the
integration of the armed forces. But such integration could only occur if the
technology required for defence products could be made available to all.
What’s more, over and above the incentives arising from the actions of
companies (the integration of which have facilitated greater progress than
any policy since 2002), the effective completion of such a process is highly
political. As such, developments are not always linear, but subject to
political and regulatory resistance.11
While it is true that the industry today seems more proactive than
policy in pushing for integration – and that due in no small measure to the
combination of technological advances and the discipline imposed by the
financial markets on listed companies – it has not always been this way. In
the 1990s, European policy stimulated the integration and restructuring of
an industry that to all intents and purposes was still self-sufficient: the
Franco-British Joint Declaration on European Defence in Saint-Malo
(December 1998) and the declaration of the European Council in Helsinki
(December 1999) seemed to have ratified the Europeanisation of EU
countries’ military capabilities that would have inevitable repercussions on
For an analysis of the mechanisms that determine these processes, see Eliassen &
Sitter (2002).
11
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 175
industry. It seemed as if Europe was about to launch that virtuous circle of
“active foreign policy – public investment – manufacturing and technological
expertise”, which until then had only worked in the United States. An active
foreign policy requires the public administration to plough huge
investment into the defence sector, investment that will fuel the growth of a
country’s technological expertise, enabling it to strengthen itself against
other countries, play a more important role on the international stage and
therefore be more involved in international relations. This process did not
take place.
4.
Governments, institutions and investors: A changing role
If integration and restructuring initiatives today seem to be more in the
hands of industry than politicians, this is not only due to political inertia,
but also to structural developments that are rapidly changing the role of the
players involved in the relationship between the defence industry, public
administrations and financial markets in Europe. It is therefore opportune
to reflect on possible future developments.
At first glance it might seem strange that European governments will
see their role gradually diminish over the medium term. The main reasons
for this are four-fold: the informational asymmetry stemming from
increasingly complex technology and the risk of making decisions on the
basis of an inadequate information set; the cost of this technology and the
budgetary difficulties that individual European countries (including even
France and the UK, the two biggest investors in defence systems) will face
in financing its development; the gradual internationalisation of the market
and the greater influence that foreign interests will have on companies’
decision-making as a result; and the trend towards consolidation and
bigger shareholder bases. In this case the adage “strength in union” is more
appropriate than ever: the European Union could play a greater role to
compensate for the diminishing influence of individual countries.
The military capabilities required for a joint defence policy cannot be
built overnight. The starting point must of course be a joint technology
base: this could be the role of the European Union. The decision to provide
the European Defence Agency with sufficient funds to undertake the kind
of work performed by the US Defense Advanced Research Projects Agency
(DARPA) – responsible for identifying civil or military technologies that
could be used for national security and promoting their development –
would represent a significant turning point both in procurement (for the
176 | ALESSANDRO PANSA
first time a supranational European body would operate alongside the
procurement bodies of individual countries) and in respect of the EU’s
budget, which would have a new ‘defence’ category.
Beyond financial considerations, if the EU could influence investment
and strategic decisions by directly allocating funds to defence-related
activities, it would have a direct role in strengthening and restructuring the
industry, and have bargaining power with member states.
So why is this not happening? It is not possible to identify a single
reason for this umpteenth missed opportunity, but clearly legal and
regulatory difficulties, European bureaucratic inertia and vested interests
played their part. But the fact remains that if a defence category were
effectively added to the EU’s accounts and the EDA were to assume a role,
this could have significant consequences both on the relative influence of
individual European countries on defence policy (individual national
budgets would become less important over time) and on arms procurement
decision-making. The existence of a European institution with financial
powers would require an increase in joint investment decisions, and the
countries with the greatest propensity to spend would be partly affected by
it. The UK and French approaches to defence industrial policy (which we
will refer to later) show how difficult it would be for these countries, in
reality and behind the public declarations, to accept the effective launch of
a European arms procurement policy. Thus there is a risk that the Agency,
far from becoming a driver for European technological development,
would join the list of useless and expensive EU bodies.
There is, however, another initiative that could facilitate the
integration of European defence and also significantly strengthen the
industry. Moreover, it is directly linked to individual countries’ budgets:
the national accounting criteria currently established in Europe through
Eurostat (and confirmed by a resolution in March 2006) includes defence
systems investment in current expenditure. Apart from being questionable
at a conceptual level (military aircraft, warships or cost control systems are
not exactly comparable to photocopiers or service cars), it does not permit
the costs of purchasing goods with a period of use not normally less than
15-20 years to be allocated to more than one financial year. Methods of
accounting more appropriate to the nature of and criteria for the
development, production and use of military vehicles, which often have
fairly lengthy timescales and considerable research costs, could, and in our
opinion should, be introduced. These different accounting systems would
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 177
have a significant impact on both the cost borne by the public purse in any
one year and the option to introduce funding systems for defence
investment that would make it possible to fully exploit available
procurement resources without recourse to creative accounting of dubious
acceptability. Once again, this would assist the countries that have the most
difficulty in increasing their budgets for military equipment, and hence the
entire procurement system.
In recent years, private equity funds also seemed to be able to play a
role in the European defence industry. These investors were supposed to
bring a more scrupulous application of financial discipline and
management criteria strictly geared towards the creation of value – an
important element for an industry that still seems, on many fronts, to be
much less efficient than a more business-like management would allow.
5.
Industrial structures, control systems and the equity market
But here again, we believe that the equities market will play the lead role in
the future of the European defence industry, regardless of its performance
and its short- and medium-term trends. This might seem a strange and
risky assertion, considering that until a few years ago, the majority of
defence companies in EU countries were not listed and generally had no
relationship with the capital markets, but we don’t think it is.
In Europe, there are two fairly typical models – the UK and the
French model. The UK model is extremely pragmatic and based essentially
on three principles: collaboration between companies makes sense only to
the extent that it enables them to develop and manufacture competitive
defence systems; the state must remain outside companies’ shareholding
structures, or it would be inconceivable to talk about integration between
European companies. In this scenario, the identity of the UK companies is
relatively unimportant; it is much more important that they develop
research, technology and products on UK territory. (One wonders,
moreover, whether this British pragmatism hides not only an unwillingness
to take part in European aggregation but also a desire to prevent this from
happening and the EU having a greater influence than it does currently on
procurement policy.) Conversely, the French approach, which we could call
‘dominant autosegregation’ or ‘competitive autonomy’, is based on a
labyrinthine network of defence company shareholder structures, which
seems to have been created to ensure that the state retains control of the
companies and at the same time prevents them being taken over. French
178 | ALESSANDRO PANSA
industry seems willing to participate only in mergers that allow it to gain
control of foreign assets without sharing control of its own, and
furthermore, does not allow overseas strategic investors to hold a
significant stake in the capital of its own companies. This approach is not
conducive to integration, especially since the French system is undoubtedly
the cornerstone, in terms of size and technology, of virtually any
restructuring or consolidation of European industry. The French attitude to
maintain a strict control over its defence industry has recently increased, as
a response to the financial and economic crisis.
The equities market plays an important role in both models:
managing changes in ownership and management in the UK case, and
ensuring sufficient liquidity for investment without jeopardising the
shareholder structure in the French model. But only an expansion of this
role could ensure a successful long-term future for European industry.
The structure of the industry does not require the government to be a
shareholder in sector companies in order to control one of the country’s
vital resources, national security. The methods of assigning contracts
(favouring companies that maintain or plough investment into the
country), their financial structure, the availability of funds and public
structures (or funding by the public sector) for the development of
technology are also incentives to maintain and expand the national
industrial base. The UK ministry of defence, for example, has adopted a
definition of national defence industry on the basis of the place where the
technology was developed, the site of the intellectual property, the location
of new jobs and the destination of investment. This definition to a large
extent excludes companies’ ownership structure.12
Conversely, the distribution of most (if not all) of European defence
companies’ capital on the market – this is what is meant by the “greater
role of the market” – could promote a different, more efficient and stronger
industry structure, without diminishing the indirect control that the public
administration has over them. This could lead to more efficient (albeit not
necessarily more generous) financing of companies’ growth, a
strengthening of the financial discipline to which they are subject and a
drive to implement streamlined processes of restructuring and integration.
12
See UK Ministry of Defence (2002).
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 179
The effects of an expansion of the shareholding base would be seen both in
companies’ business structures and in their monitoring and control criteria.
From the first point of view, with stricter financial control stemming
from an increase in ‘public company’ status, companies vie for leadership
in their reference markets. In the defence sector, leadership can only be
achieved through technological superiority and the ability to exploit
economies of scale and associated economies of scope. By manufacturing
goods with a high technology content, companies can effectively reduce the
price elasticity of such goods, thereby increasing profit margins and the
cash flow available for investment aimed at strengthening technological
leadership, which enabled them to generate such investment in the first
place. It is therefore likely that we are seeing a concentration of companies
in those areas that allow better capital allocation alongside a gradual
reduction of their activities in sectors where an allocation does not optimise
the risk/return profile of the asset portfolio. Defence companies, in other
words, will tend to “do fewer things” but will have greater influence in
sectors in which they will maintain a presence.
The expansion of the shareholder base and the ability to take over
companies would also root out at source the problem of the control of
assets that, in today’s climate, is a real concern for some European
countries, and especially for the French industrial system. The absence of
key shareholders would facilitate company mergers, triggering a process of
greater integration between national procurement procedures, a process
that, in order to be efficient and effective, also requires considerable
political will. This would also benefit the managerial structure. Here too,
increased competition in the leadership of companies could facilitate
innovation and changes in a sector that is somewhat resistant to integration
with other industries, and enable senior managers to be brought in from
outside.
Put simply, European industry will be able to operate between four
extremes: on the one hand consolidation versus specialisation; and on the
other, tight control versus a more open and dynamic shareholder base.
While different combinations of industrial and shareholder structure would
theoretically be possible (including a powerful process of consolidation that
is not only stable but completely ‘closed’), it is likely (we might even say
“to be hoped”) that companies will become increasingly specialised, open
their ownership structure and subsequently regroup by production sector
or by technology, with a further expansion of the shareholder base.
180 | ALESSANDRO PANSA
Are there dangers inherent in this potential opening up of the market
and reduction of power currently held by the controlling shareholders,
which are often public or at least influenced by the will of the public
administration? Is there not a risk in letting financial democracy determine
the ownership structure of companies that develop and own technology
that is important for the security of a country, and at least 10 to 20 years
ahead of that of some countries, which harbour foreign policy ambitions
and therefore have an interest in undertaking active defence policies?
We don’t think so. Or rather, we think that if there is a risk, it’s one
worth taking, essentially for two reasons. The first is, strictly speaking,
defensive: control of specific technologies – and increasingly the control of
their use – is clearly important, but there are many formal and informal
tools with which to achieve it, other than the rigidity of the ownership
structure. We referred to this above. In this sense, proposals to institute
procedures to limit the investment of important financial players from
outside the EU do not seem appropriate. The change in the conditions of
financial democracy – one of the key competitive advantages of Western
economies – which would enable this, would go in tandem with an
approach that would maintain the status quo in the defence industry,
which is structurally inefficient (too nationalistic and fragmented) and
unstable in terms of shareholder base.
The second reason is more prophetic. Perhaps only the transfer of
defence companies’ control mechanisms to the market can usher in a phase
of definitive industry reorganisation (following that which occurred at the
beginning of the century), encouraging fundamental integration, which
would create companies of a sufficient size, asset base and technological
expertise to achieve a position of leadership, and foster the launch of panEuropean defence policies.
Finally, in this environment, the role of the sovereign wealth funds as
a potential shareholders of some defence or, more general, high-tech
companies could be considered more an opportunity than a risk. These
institutions have until now showed more an interest towards financial
returns of their investments (actually very limited in the most recent
periods) than the intention to play a more “political role” in the companies
where they are shareholders. Their role as providers of capital as well as of
business opportunities in their home countries could well be compatible,
through an adequate system of regulations and corporate governance
EUROPEAN DEFENCE OR DEFENCE OF EUROPE? | 181
provisions, with either the protection of the technology or the
independence of the companies.
References
Alcaro, R. (ed.) (2006), Le Missioni PESD Operazioni, strutture, capacità (EDSP
Missions: Operations, systems, capabilities), IAI Research
Department of the Italian Senate, No. 49, July.
Bitzinger, M. (2005), “The PRCs Defense Industry: Reform without
Improvement”, China Brief, Vol. V, No. 6, 15 March.
Dassù, M. and R. Menotti (1997), “The Ratification of NATO Enlargement –
The Case of Italy”, proceedings of the Conference on NATO
Enlargement: The National Debates over Ratification, 7 October.
De Cecco, M. (1998), L’oro di Europa. Monete, economia e politica nei nuovi
scenari mondiali (Europe’s gold), Roma: Donzelli.
Eliassen, K.A. and N. Sitter (2002), Between Regulation and Competition: Hard
and Soft Resistance to Europeanisation in the Financial Services and
Defence Sector, Centre for European and Asian Studies, Norwegian
School of Management, Oslo, June.
Missiroli, A. and A. Pansa (2007), L’Europa della difesa, Genoa: Il Melangolo.
Pansa, A. (2002), European Defence Procurement and Industrial Policy: The case
for Sweden, Norwegian School of Management.
Stokes, M.A. (1999), China’s Strategic Modernization: Implications for the
United States, Strategic Studies Institute, U.S. Army War College.
UK Ministry of Defence (2002), Defence Industrial Policy, Ministry of Defence
Policy Paper No. 5, October.
10. EUROPE AND GLOBAL ECONOMIC
GOVERNANCE AFTER THE CRISIS
PIER CARLO PADOAN
E
ven before the global crisis, all long-term scenarios confirmed that
over the next 15 to 20 years, Europe’s relative economic weight
would shrink as that of new emerging economies – China, India,
Russia, Brazil (the so-called BRICS) rose. The crisis has done nothing to
alter this scenario, but it has made clear that the global economy is
suffering from a governance gap.
The crisis itself is proof of this statement, and is the result of both
market and policy failure. The international macroeconomic aspect of such
a twin failure is reflected in the inability to address the global payment
imbalances that have accumulated over a decade or so, (also) in the belief
that markets could finance such widening imbalances, thanks to their
resilience and efficiency. The post-crisis reconstruction requires a serious
reconsideration of how to deal with global macroeconomic imbalances,
now and in the future, and how to maintain the global economy on a
balanced and sustainable growth path through cooperation among all
major players, including the large emerging economies. To this effect, in
addition to macroeconomic governance, trade and capital market openness
and stability are essential prerequisites for a stronger global governance, as
has been stated repeatedly by the G8 and G20 summits. Is Europe willing
and able to contribute actively to meeting this challenge?
1.
The breakdown of Bretton Woods II and beyond
Most crises are drivers of change because they often lead to the breakdown
of key mechanisms and institutions and create the need for new ones. The
crisis that started in the US subprime mortgage market is the most severe in
eight decades and is also truly global. When it ends, the international
economy will never be the same again.
182 |
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 183
The crisis has destroyed the fundamentals of the so-called ‘Bretton
Woods II model’ (BWII) on which global growth has been based for the
past decade or so. In the BWII world, excess savings in emerging
economies, including oil-producing countries, were reinvested in the centre
of the system, as the US economy was considered the ‘safe haven’ par
excellence. The crisis has destroyed the credibility of the centre and, with it,
the main engine of growth and the financing of growth. It is highly
unrealistic, not to say unthinkable, that in the foreseeable future the main
engine of global growth will still be US household demand, fuelled by
sophisticated but opaque financial instruments.
Growth will resume after the global recession but it will most likely
be a structurally lower growth. More importantly, global growth will be
driven by several engines rather than by a single engine, and each of these
engines will be individually less powerful than the one that has collapsed,
as well as being partially disconnected from the others. Household demand
in the US will be partly replaced by American exports driven by a weaker
dollar, and also by the still powerful US productivity engine. It remains to
be seen if US investment and innovation will be able to generate, at least in
part, a productivity cycle as long and intense as the one that lay behind the
‘new economy’ of the 1990s.
One key question is whether the BRICS will move into the driver’s
seat of the world economy and become global engines of growth. As
mentioned above, long-term projections see China and India (although
much less so) as the top economies 20 to 30 years from now. But most of
these projections extrapolate into the future a scenario that may no longer
be there; a relatively stable world economy in which global markets are
open, economic integration continues to progress and there is no major
crisis. For this scenario to materialise, the post-BWII economy will have to
be based on two pillars – more domestic demand in emerging economies
and more ‘investment integration’ globally.
Concerning the first pillar, emerging economies both large and small
will, sooner or later, have to face the challenge of their own internal
transformations as domestic demand will have to be given more space and
export-led growth will be less relevant. This transformation will need to be
accompanied by high and sustained growth rates; necessary conditions for
these countries to raise the standard of living of a large part of their
populations who still live below the poverty line. Needless to say, such a
transformation will be even more demanding politically than economically.
184 | PIER CARLO PADOAN
The ‘investment integration’ pillar will have to offer a major
contribution to global growth. In BWII excess investment in the US led to
America’s growing current account deficit, while excess savings led to the
accumulation of international reserves in many emerging Asian economies
and in oil-producing countries. The scenario that worries countries like
China is the risk that their reserves will lose value because of the US
dollar’s depreciation and/or capital losses in the US treasury market. The
request for reform of the international monetary system and the creation of
reserve currencies as alternatives to the dollar – something increasingly
suggested by top Chinese officials – reflects this very real concern.
But this is only part of the story. A look at gross rather than net
capital flows shows that in BWII, while China exports capital that is
invested in US financial markets, it also imports capital from the US and
elsewhere that adds to its physical, knowledge, and human capital
resources. China has become a fast-growing base for international R&D and
a key component of global value and innovation chains, which could not
have taken place without a massive inflow of capital from the world’s
advanced economies. Much the same can be said of India and a number of
other Asian economies. A more sophisticated interpretation of the BWII
growth model therefore suggests that the massive investment of Chinese
reserves in US Treasury bills is a way of providing ‘collateral’ so as to
attract the levels of investment from American and other multinational
companies in China, which are essential to sustaining its high per capita
GDP growth. This interpretation also underpins the idea that China sees its
own best interest in the long-term profitability of its invested resources, not
in short-term gains. Of course, this works both ways, as China increasingly
values long-term capital outflows, as can be seen in the increasingly
important role of its Sovereign Wealth Funds. These, in China as in other
emerging economies, are instrumental in directing huge reserves towards
long-term investment and thus boosting the long-term growth rate.
A sustained long-term growth rate of the Chinese and other Asian
economies is fully consistent with a post-BWII model, where stronger
growth in emerging Asia would compensate for lower growth in the US,
especially if increased productivity growth in China is accompanied by a
gradual slackening of the propensity to save. This largely reflects structural
rather than short-term factors as the high-saving propensity of Chinese
households reflects the need to counter the absence of social protection.
And the high-saving propensity of companies reflects the inadequacy of
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 185
China’s domestic financial sector, which has led to high levels of retained
profits.
What about Europe? During the BWII years Europe was a slowgrowth economy, which could grow even more slowly in the future. The
massive use of fiscal measures to deal with the last financial emergency and
with the recession loosening fiscal disciplines, the sustainability of longterm debt will be made more difficult still, as is also the case in the US.
More flexibility in the application of the EU’s Stability and Growth Pact is
welcome and needed, but there is a risk that the credibility it has earned
over the past decade could evaporate. On the other hand, a long-term
European growth strategy based on a revamped and ‘green’ Single Market,
as well as the Lisbon Agenda for competitiveness, has yet to be
implemented to any large extent. Such a strategy could benefit greatly from
a more open global investment regime encouraging both inward and
outward long term capital flows.
In a post-BWII scenario, we could and should see smaller global
imbalances, and smaller current account deficits and surpluses in the US
and China respectively, but we might also see larger gross capital flows
between the world’s main economic regions. These flows would transfer
both physical and knowledge capital and thus drive productivity growth
on a global scale. This would be all the more so if climate-related and green
technologies were transferred much more than they are at present. But to
be really effective, these gross flows would have to be complemented by
flows of goods and services, whose role in a knowledge-driven economy is
essential. Open markets will be more important than ever.
What international institutions will we need to support a post-BWII
world? The post-crisis response led by the G20 includes a commitment to
major reform of the IMF and a strengthening of the Financial Stability
Board (formerly the Financial Stability Forum). The IMF has received
substantial additional resources, and its governance is to be reformed to
give more room to the emerging economies. It will also carry out, together
with the FSB, the enhanced monitoring of systemic stability. The FSB is
leading the reform of the regulation and supervision of the financial
system, even though it remains to be seen whether this will lead to a truly
global framework. But this may not be enough. If not, the BWII system will
have to rely, even more so than in the past, on open markets for both trade
and investment, which will also require stronger global governance and
stronger institutions.
186 | PIER CARLO PADOAN
A stronger post-BWII world is in the interests of Europe. How can
Europe contribute to the post-BWII world, and what role should Europe
play in reformed international institutions?
2.
Keeping markets open in investment and trade
The post-BWII world should be based on more open economies and on
stronger long-term capital flows. For this to happen we need a ‘global
investment regime’ based on shared regulation and standards related to
investment activity so as to complement the FSB’s sound ‘financial regime’
and the IMF’s stable ‘macroeconomic regime’. Investment will go where
there is a transparent relationship with governments and where the cost of
doing business is low, where sound corporate governance prevails, where
there is no corruption, where reliable and possibly cheap skills are
available, where a level playing field does not discriminate against foreign
companies, where competition policy lowers barriers to entry and supports
innovation and where a free flow of goods and services complements
investment flows.
But such a regime does not yet exist globally, and an agreement
between all major economies, both developed and emerging, on these
points still needs to be established. Such a regime would require an
institutional framework to update and monitor rules and standards that are
shared by all the major players. From this point of view, what is needed for
the post-BWII world is an enlarged and reinforced OECD, for the OECD is
the only international organisation that brings together all the expertise
needed for a global investment regime to operate effectively, whether alone
or in collaboration with other international organisations. The present-day
OECD would clearly have to expand its membership to all major emerging
economies so that a new regime can be built on a shared view of the postBWII world. Europe should act forcefully to expand the role and
membership of the OECD.
Let us turn to trade. At the time of writing, we still do not know what
will happen to the Doha Development Round and whether multilateral
trade negotiations will be successfully concluded. Whatever the outcome, it
is generally acknowledged that over the next few years trade relations will
be dominated by a proliferation of bilateral and regional agreements
known as PTAs, or preferential trade agreements. To date, over 200 of these
have been signed, of which many share a common feature – a focus on
those areas that have remained outside the mandate of multilateral
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 187
negotiations, i.e. services, intellectual property rights, investment,
competition policy. In a context where both growth and competitiveness
are increasingly based on innovation and the dissemination of knowledge,
as well as the development of global value chains through relocation and
outsourcing, these areas define the terms of global competition. In other
words, whatever the fate of the Doha Round, both Europe and other
countries will have to define policies to support growth on the basis of
preferential agreements while leaving open, and possibly strengthening,
the prospects for a multilateral agreement.
In recent years the European Union has been, at least in part, an
agenda-setter in international trade; if and when it chooses to do so, its
impact as a single entity is by far greater than the sum of its parts.1
Europe’s single voice on trade has prevailed, also in the presence of
different national preferences linked to different national specialisations
(on agriculture, textiles, advanced services, etc.) and different approaches
to the organisation of national welfare systems. In multilateral negotiations
Europe is a member of the G4 along with the United States, India and
Brazil, i.e. a member of the group that during the critical phases of the
Doha Development Round attempted to hammer out an agreement.
Global trade architecture today bears a significant European mark, as
does the architecture of regional agreements, and Europe’s commitment to
a gradual opening of markets remains intact (regardless of the CAP).
Should global imbalances not be settled adequately, one cannot however
rule out Europe displaying some propensity to protectionism too,
especially in conjunction with lasting euro appreciation and as an illadvised response to the request for security that is currently being
expressed by European citizens who are fearful of globalisation.
Europe has defined its own strategy for a trading system where PTAs
prevail. In December 2006, the European Commission launched its ‘Global
Europe’ Communication, which defines guidelines for the Union’s trade
policy in a framework of proliferating regional and preferential
agreements, where topics not taken up by the Doha Round are going to
become increasingly significant. The document clearly defines European
philosophy in this context:
1
See Lamy (2004).
188 | PIER CARLO PADOAN
Our core argument is that rejection of protectionism at home must
be accompanied by activism in creating open markets and fair
conditions for trade abroad. (...) There are two core elements in
pursuing this agenda: stronger engagement with major emerging
economies and regions; and a sharper focus on barriers to trade
behind the border. (European Commission, 2006, p. 6).
The message is clear and the line adopted echoes the ‘strategic trade
policy’ principle that emerged in the eighties, when non-tariff barriers and
market access policies became increasingly relevant.2
What remains to be seen is how this strategy will be implemented,
and whether it will indeed lead to more openness and integration. Among
the many possible future scenarios, the one in which this strategy is used to
consolidate transatlantic integration, especially in the field of market access
regulation, and where a shared vision of competition policy helps define
technical standards, would clearly yield such a ‘critical mass’ of
harmonisation as to become a standard-setter for all international trade
relations. Moreover this strategy could be used more closely to involve new
players in international governance.
This is all the more important in the framework of the response to the
global crisis. The protectionist responses to the crisis that were feared have
been very limited or non-existent. As we move forward in a protracted
slow growth scenario, however, and with massive unemployment ahead,
pressures for protection may be on the rise and it should be Europe’s role
and interest to resist them. But in order to resist protectionism effectively a
convincing growth strategy must be designed and implemented.
3.
Europe and the United States as ‘global regulators’?
Open capital markets require stability. The response to the financial crisis
has triggered a massive action to reform financial market regulations on a
global scale. Yet, in spite of significant efforts led by the Financial Stability
Board and supported by the G20, it is highly unlikely that at the end of the
process we will see the rise of a single global regulatory and supervisory
system.
2
See discussion in Guerrieri & Padoan (1988).
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 189
In principle one should expect that moves towards this scenario
could be led by a joint US European initiative. The United States and
Europe together account for 40% of the world’s GDP but they generate 80%
of all regulation. Their converging on the definition of standards and
institutional architecture would decisively impact world market regulation.
Considering the role increasingly played by investment from emerging
economies, financial and otherwise, defining a global regulatory
framework would be key to supporting a multilateral framework and
resisting the temptation of protectionism in investment. Is this in Europe’s
interest and capacity?
As noted by Becht & Da Silva (2007), the 27-member state European
Union boasts the largest banking sector, the largest insurance industry and
the largest payments system in the world. It also has the largest private
market for fixed rate securities, and its derivatives and equity markets are
comparable to those of the US. Despite this, Europe’s influence as a major
player in financial system regulation remains limited. In this field, as in that
of monetary relations, Europe’s voice appears to be weak and fragmented.
In this area too, unexploited externalities require a single regulatory policy.
The technical difficulties involved in defining joint regulatory
standards should not be underestimated, especially in light of the fact that
regulation is per se a complex endeavour that concerns a variety of
different fields, ranging from investor protection to technical standards,
market supervision, and combating financial crime. But, as pointed out,
Europe would have the ‘critical mass’ not only to identify common
standards but also to gain their acceptance as global standards, all the more
so if these standards were shared with the United States.3 At the same time,
a regulatory framework developed at the behest of the world’s leading
economic areas would be the most effective antidote to the (possible)
political and ‘non-market’ use of resources controlled by SWFs. It would be
a major contribution to the establishment of a sound ‘investment pillar’.
Before the outbreak of the crisis, what was standing in the way of
deeper cooperation between the US and Europe in this area was, on the EU
side, the inability of European countries to overcome national visions,
define European interests and policies, and to identify common rules for
One limited but instructive example concerns accounting standards. European
standards in this field are in the process of becoming global (see Veron, 2007).
3
190 | PIER CARLO PADOAN
the European market. Faced with this problem Europe’s response has been:
harmonisation where possible and mutual recognition, otherwise. But even
mutual recognition, tantamount to a multiplicity of bilateral agreements, is
not a workable solution if it is not supported by efficient implementation
and enforcement, putting all participating countries on an equal footing.
Despite a push to complete a European financial market under the
Financial Sector Action Plan, gaps and redundancies still remain in the
governance of Europe’s financial stability, with over 80 agencies involved
in financial market supervision and regulation. This is an obvious case of
inefficiency that increases compliance costs for intermediaries.
Despite all these limitations, financial market integration has been
moving on. Through a market-led process, a ‘European bias’ has slowly
emerged in EU financial markets following the introduction of the euro and
the subsequent removal of exchange rate risks, not to mention regulatory
harmonisation and product-market integration. Intra-European Union
cross-border capital flows have increased significantly. London has become
the inter-bank market hub and this has, inter alia, elicited ever more UK
investor interest in the euro. Finally, eurozone intermediaries are funding
investment in the new member states.
Even before the crisis the general context was tending to push
towards greater integration and increased uniformity in regulatory
systems. New players emerging, not only in trade but increasingly in
financing and investment, would have speeded up the identification of a
shared European interest in participating, alongside the US and new
members, in the definition of a regulatory framework tailored to the
demands of globalisation.
The crisis has changed the scenario dramatically, accelerating it but at
the same time showing the limits of European action. As a response to the
crisis both the US and Europe have launched ambitious reforms of financial
regulation and supervision within the G20 process. While these reform
processes are independent, they do present a number of similarities, as well
as inevitable differences.4
4 For a more detailed analysis, see Masciandaro & Quintyn (2009) who also show
how, in the decade before the crisis, EU regulatory retro at the national level has
proceeded but moved towards increasing divergence.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 191
Both reform blueprints present proposals that are based on very
similar if not identical principles: stronger bank capital requirements, less
pro-cyclicality, more control over rating agencies, a more relevant role of
the concept of ‘fair value’ in accounting procedures, ‘parallel’ market
institutions such as hedge funds and private equity have to be made more
transparent and subject to regulation, OTC derivatives should be
intermediated through clearing systems, managers’ compensation must be
tied to long-term performance, more effective crisis resolution mechanisms
must be put in place, fragmentation in regulatory architecture must be
reduced and central banks must be given more power in surveillance while
a stronger role must be played by the Basel Committee, the Financial
Stability Board and the IMF.
There are, however, also significant differences. Starting from the role
assigned to central banks. The Federal Reserve has full responsibility of
surveillance of the financial firms, both banks and non-banks, which have
systemic relevance and can affect the stability of the system. The European
Central Bank is assigned the more limited role of ‘hosting’, coordinating
and chairing the European Systematic Risk Council (ESRC) which is made
up of the members of the ESCB (European System of Central banks), the
European Commission, and the chairs of the three authorities set up
following the recommendations of the Lamfalussy report: the European
Banking Authority (EUA), the European Insurance Authority (EIA) and the
European Security Authority. The ESRC will have only macro-prudential
responsibility looking at the system’s overall stability, while micro
prudential oversight will remain with the single national authorities. It will
only be able to issue recommendations related to systemic aspects of
stability. Its governing power will be limited to say the least. The US has
also created an authority to oversee surveillance, the Financial Service
Oversight Council, which includes the Fed, the US Treasury and other
surveillance authorities. The Secretary of the Treasury will have a
coordination role of both macro and micro surveillance.
In case of financial turbulence the different degrees of coordination
could well prove essential. It is true that at the peak of the financial crisis
Europeans showed an exceptional degree of coordination in facing the
emergency. However, this ad hoc response required exceptional
circumstances and can hardly be taken as a model for more effective
governance.
192 | PIER CARLO PADOAN
A third difference is related to the creation of an agency for consumer
protection in the US, the Consumer Financial Protection Agency, which
will oversee products and processes in the credit, savings and payment
system segments.
Finally, it is important to note that in neither of the two jurisdictions
do we see a full consolidation of surveillance structures. The European
System of Financial Supervision, which includes EBA, EIA and ESA, as
well as the national surveillance authorities, is only a network of
decentralised structures. Daily surveillance will remain with national
authorities that are closer to the intermediaries. The EU-level agencies will
act as standard setters and coordinate their implementation. The US will
maintain six authorities in addition to the Fed and Treasury (the SEC, the
National Bank Supervisor, the Commodity Futures Trading Commission
the Federal Deposit Insurance Corporation and the Federal Housing
Finance Agency).
To conclude, while both strategies fall short of full reform and take
with them considerable institutional inertia, the European strategy suffers
more deeply from such inertia, and we are long way from a truly European
system of surveillance, which goes along with a still largely incomplete
financial market integration. This suggests that in post-BWII there will still
be regulatory differences among jurisdictions, and arbitrage. In short, a
reformed US financial system will most probably prove to be the best
option for global capital flows, looking, as in the past, for profitable and
politically reliable investment opportunities.
4.
Macroeconomic governance
Macroeconomic relations are different from trade relations but similar to
financial regulation, with European presence largely devolved to
individual states. There are four EU member states in the G8, but it would
be hard to contend that the G8’s agenda is clearly set by the Europeans. A
similar yet even stronger case can be made for the G20. Attempts at reform
of macroeconomic governance have been launched in the recent past. In
trying to deal with global imbalances, and in the context of its MediumTerm Strategy review, the IMF has introduced an informal consultative
group made up of the US, Japan, the eurozone, Saudi Arabia and China, i.e.
all the major players in global imbalances, including those who are not G8
members.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 193
Ever since the issue of global imbalances came to the fore, the
International Monetary Fund has supported a coordinated adjustment
strategy which, in line with official G7 statements, provided for a cut in
public deficits and an increase in private savings in the US, more exchangerate flexibility in Asia (and especially in China), structural reform in Europe
and Japan to increase growth potential and more spending and absorption
capacity in oil-producing countries. The IMF in this context was to
implement more effective surveillance, both multilateral and bilateral, in
individual countries,5 with particular focus on those where performance
has systemic implications. The crisis has shown that this initial attempt was
not successful. At the time of writing, the G20 has called for a more
coordinated and long-term oriented surveillance mechanism to ensure
balanced and sustained global growth, where the IMF should play a
leading role.
It is too early to say if the proposal will be implemented and if it will
be effective. It is difficult to deny that, if more effective coordination among
key players, including Europe, does not take place, the issue of managing
payment imbalances and global growth will be addressed within US-China
bilateral relations, with Europe (or rather, the eurozone) adopting an
attitude of (benign?) neglect.
The time is also ripe for a rethink of the relationships between major
currencies, as is necessary in a post-BWII scenario. Changing this
relationship requires both flexibility and orderly burden-sharing in the
adjustment and transition to a new monetary regime. Several measures are
on the table that would, for instance, link the Chinese yuan to a basket of
currencies, or identify ‘target zones’ or allow for the Chinese exchange rate
to be fully flexible and even promote the role of the yuan as a global
currency. Whatever the solution, the crux of the matter is that the eurozone
should define its position much more clearly and uphold it in multilateral
and bilateral fora. Europe’s limited voice in this respect runs the risk of
being interpreted as a lack of interest or worse still, as passivity in the face
of events. All of this also suggests that Europe, or at least the eurozone,
5 This is the thrust of a recent revision in the IMF’s terms of reference for
surveillance, under which the Fund is explicitly entrusted with monitoring
exchange rate regimes.
194 | PIER CARLO PADOAN
should opt as soon as possible for single representation in international
financial institutions and in unofficial groupings (such as the ‘G’ summits).
Both the IMF and the World Bank are governed by boards on which
24 members sit with different share holdings, representing 185 countries.
The United States has the single largest share, with a little over 17%. Taken
together member states of the European Union have a larger share than the
US. France, Germany and the UK represent a single country constituency
each. The other European Union member states are distributed over six
other constituencies, and in several cases also hold the executive director
positions. The Fund and Bank boards operate on a consensus basis. This
means that what happens upstream, most often in the framework of the
G7/G8 for the advanced economies and the G11 for emerging economies
(including China), and possibly in the G20 from now on, is of essential
importance in establishing consensus. Although they do not have an
absolute majority, historically G7 countries have had a predominant
position in the decision-making process. In recent years, European
countries have also developed a coordination method, in Brussels and in
Washington, on the basis of which some of their board decisions are taken
jointly. Interaction between the G7 and the European coordination group is
complex, sometimes fraught, and at times European members of the G7
have upheld positions different from those of other EU governments.
A single EU, or at least eurozone, representation in international
financial institutions would increase Europe’s clout in global governance
while at the same time improving global governance by enhancing the
involvement and accountability of new emerging economies. A single EU
(or eurozone) representation, if set on the same level of the US, would
command more authority than the current sum of EU representatives6
while at the same time making space available for a larger share of
emerging economies. But there is more to this. Europe is currently faced
with a paradox. Computing Europe’s weight as a ‘swing-voter’, one can
conclude7 that if Europe were to speak as one voice, it would carry the vote
6 Adding the current shares held by individual EU member states yields a figure of
about 30%, but if eurozone countries were to go for single representation, the sum
of their shares would have to be corrected for intra-zone trade, which is currently
taken into account. See Bini Smaghi (2006).
7
Ibid. (2006).
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 195
in practically all cases. But, and therein lies the paradox, Europe has so far
proved largely incapable of using its economic and political clout in global
governance, precisely because it has spoken with multiple voices.
Why hasn’t Europe taken the decisive step towards single
representation? Two possible explanations can be offered, which are partly
complementary: different preferences and dysfunctional governance.
Differences in national macroeconomic policy preferences would stand in
the way of European countries arriving at joint positions in international
fora just as different trade policy preferences would weaken EU positions
in WTO negotiations. This assumption is not very convincing if we think to
the euro, which implies a single monetary policy, regardless of the fact that
a single monetary policy may at times yield differing outcomes in different
eurozone member states. One could argue that having single IMF
representation would imply speaking with one voice, also regarding fiscal
issues, a field that has remained the purview of individual member states.
But this is not a fully convincing argument either. On the one hand the
Stability and Growth Pact requires fiscal policy convergence and shared
policy criteria for all countries. On the other, through surveillance the IMF
is already assessing the euro area’s fiscal policy both in terms of internal
consistency and operation, and in terms of global macroeconomic impact.
This leads us to the dysfunctional governance or decision-making
inefficiency assumption.8 Regarding macroeconomic relations, this
describes EU countries’ difficulties in identifying an internal decisionmaking mechanism that would yield joint positions in international fora.
Put differently, there is no point in setting up single representation with the
IMF if the executive director for Europe is not given clear and timely
guidance by his or her authorities (while executive directors for individual
European countries do receive such guidance from their capitals). Up to
now there has been no such handing over of sovereignty and many
European governments remain opposed to concrete steps that might lead
to single representation. The reason this is not happening is simple. Moving
to single representation would involve redistributing power within the
European countries group. The larger countries would need to relinquish
part of the clout they currently wield including in G groups, whereas
smaller countries (who are not G7 members and are therefore fearful of
8
See Pisani-Ferry (2005).
196 | PIER CARLO PADOAN
losing even more visibility and voice) are even more fearful of ceding
power to larger countries.
Pressure for single representation (or rather, single voice) is
nevertheless increasing. This stems first of all from the changes that have
occurred globally. Shifts in economic power and the move to regional or
bilateral governance models have reduced the clout of individual European
countries, none of which can aspire to global player status. Pressure comes
equally from the fact that single eurozone representation in financial
institutions would free up space to increase the shares assigned to new
emerging economies, thereby allowing for their increased involvement and
consequently for more balanced international relations governance, which
would facilitate the reform of the said institutions. Such a goal should be in
the European Union’s interest. Asian countries, including China, would
carry more weight but also more responsibility as shareholders. And it
would be easier to involve China in multilateral solutions, including those
aiming to correct global imbalances, if responsibility for their management
were more equitably shared. The response to the financial crisis has
significantly added to this pressure.9 While it is still too early to see how the
process will evolve it is important to note that pressure for a single Europe
voice is very strong from countries outside Europe, most notably the US,
with the purpose of giving more voice to emerging economies.
Pressure, thirdly, stems from the role of the euro. The single
currency’s weight as a key currency is on the rise, regardless of what
monetary union member states may wish. The euro is increasingly being
used as an invoicing currency for trade among and between third party
9 The G20 document on IMF reform states: “G20 members should call for
meaningful reform to bring the Fund’s governance structure in line with the
realities of today’s global economy in order to strengthen the Fund’s legitimacy
and effectiveness. In London, G20 Leaders agreed that emerging and developing
economies, including the poorest, should have greater voice and representation.
(… ) The Fund’s governance structures – specifically the Executive Board and the
IMFC – should reflect the realities of today’s global economy. (…..) A smaller,
more streamlined Board has the potential to increase Board effectiveness.”
Accordingly, G20 members might support returning the number of Board seats to
the 20 envisaged in the IMF Articles, while preserving the number of chairs held by
emerging market and developing countries (italics added) , as one measure to improve
the contribution of such countries to IMF Board decision-making.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 197
countries, as a denominator for financial transactions, as a reserve currency
held by third party countries. Finally, this is instrumental to making the
euro area increasingly attractive as a location for foreign investment, all the
more so with the setting up of SWFs by emerging economies. This raises
the issue of defining a common policy regarding both macroeconomic
relations and the supervision of financial markets, consistent with the
establishment of a strong investment pillar in post-BWII.
Fourthly and finally, pressure is coming from the EU’s enlargement.
This provides not only for new member states adopting the euro, but it also
implies that ‘euro-isation’ phenomena will proliferate more or less
explicitly in countries wishing to join the Union or somehow coming under
its economic influence. This strengthens the need for a ‘key currency’ policy
that has repercussions on relations with other currency zones.
5.
Conclusions
Globalisation implies growing interconnection between markets and
growing policy interdependence: in trade, in investment, in the supervision
and regulation of international financial markets, and in monetary
relations. The global crisis has brought to light significant governance
failures in most if not all such policy areas. So a durable response to the
crisis and a return to sustainable and balanced growth requires stronger
global governance. This, in turn, requires agreement and shared
responsibilities of all major players, including emerging economies, and a
new role for Europe. In Europe, competition and trade policies have been
entrusted to the European Commission, Financial market policy has so far
mainly been dealt with nationally, and macroeconomic policy comes under
the jurisdiction of the Eurogroup Finance Ministers. The global financial
crisis has produced a dramatic acceleration in global governance. Europe
can take advantage of the crisis response to strengthen its voice in
international fora and contribute to a more balanced global economy: an
objective that should be in Europe’s firm interest. If this opportunity is
missed there might be a loss of European influence in international
economic relations over the long term. Europe’s influence is, in any case,
set to decline further as the relative weight of individual European
countries also declines, in addition to that of the EU as a whole.
Contributing to shape a global investment regime, speaking in a single
voice in monetary and financial matters, in addition to trade policy issues,
would not only provide Europe with more clout, but would also force the
198 | PIER CARLO PADOAN
Europeans to devote more energy to figuring out where their interests lie in
the global system, and what can be done to further them.
Despite the institutional and substantive differences in different
policy areas, Europe’s difficulties in identifying a common and effective
economic policy harken back to a common trait that stems from the very
principle at the root of its recent history. Europe’s economic policy was
devised as a mechanism to achieve a common goal, in terms of growth and
welfare through increased internal integration. And this continues to obtain
as Europe’s policy takes on an external dimension, as is the case with trade
policy. This mechanism assigns a central role to national preferences and
works best when such preferences can converge in the definition of a
‘European preference’. But that is precisely the point. If in the post-war
years a European preference could be defined, keeping in mind internal
goals such as peace among member states and economic welfare, Europe’s
preferences must necessarily be defined differently in the new global
environment.
References
Becht, M. and L. Da Silva (2007) “External financial markets policy. Europe
is a global regulator?”, in A. Sapir (ed.), Fragmented Power: Europe and
the Global Economy, Brussels: Bruegel Books.
Bini Smaghi, L. (2006), “IMF Governance and the Political Economy of a
Consolidated European Seat”, in E. Truman (ed.), Reforming the IMF
in the XXIst Century, Institute for International Economics,
Washington, D.C.
European Commission (2006), Communication on Global Europe:
Competing in the world, Brussels, December.
Guerrieri, P. and P.C. Padoan (1988), Libero scambio, protezionismo e
concorrenza internazionale, Bologna: Il Mulino.
Lamy, P. (2004), Trade Policy in the Prodi Commission: An Assessment,
November
(http://trade-info.cec.eu.int/doclib/docs/2004/
november/tradoc_120087.pdf).
Masciandaro, D. and M. Quintyn (2009), Reforming Financial Supervision and
the Role of Central Banks: a Review of the Global Trends Causes and Effects
(1998-2008), CEPR Policy Insight No. 30, Centre for Economic Policy
Research, London, February.
EUROPE AND GLOBAL ECONOMIC GOVERNANCE | 199
Pisani-Ferry, J. (2005), “The Accidental Player: The EU and the Global
Economy”, prepared for a lecture at the Indian Council for Research
on International Economic Relations, Delhi, 25 November.
Veron, N. (2007), The Global Accounting Experiment, Brussels: Bruegel
Blueprints No. 2.
PART III
THE INSTITUTIONAL FRAMEWORK
11. FROM A COMMUNITY BASED ON THE
RULE OF LAW TO THE EUROPEAN
UNION AS A COMMUNITY OF RIGHTS
MARIO P. CHITI
1.
A community based on the rule of law
Outside institutional and legal circles, few are aware of one of the more
relevant and forward-looking definitions once given to the European
Economic Community (EEC): “a community based on the rule of law”. Its
author, the first President of the European Commission, Walter Hallstein,
mentioning it in a 1965 debate at the European Parliament, intended to
apply the gist of the RechtsStaatsPrinzip to the recently established
European public authority. At the same time, he also wanted to underscore
the fundamental and unprecedented role played by law, the keystone of
the EEC, thus characterised in a totally original fashion as compared with
states and the international organisations that had come before it. The
Community did not then have, nor does it have today, its own power of
coercion; as summed up by Jean-Victor Louis (1989) in a groundbreaking
study of Europe’s legal system, “the law it develops is its only force”.
The idea of a community based on the rule of law was one that
underpinned the constitutional case law of the Court of Justice throughout
the 1960s. It later took hold in explicit terms in the ruling for Parti ecologiste
“Les Verts” v. European Parliament (case 294/83, 23 April 1986) and became a
constant connotation for all European Community/EU institutions in
subsequent case law.
Forty years later, Biagio de Giovanni (2002), in order to explain
“Europe’s ambiguous power”, referred to “the law, laws, and then rights,
and the connected principle of the humanity of man”. Similarly, Tommaso
Padoa-Schioppa – at the time not yet burdened by government office –
| 201
202 | MARIO P. CHITI
published a 2001 collection of essays under the title Europa forza gentile in
homage to Scotsman David Hume, who first introduced the concept of
gentle force, and with a view to defining the European Union as a public
authority exclusively based on voluntary acceptance, the sharing of a novel
“supranational sovereignty” and the renouncing of coercion.
The road travelled over the 50 years since the first Rome Treaty –
preceded by the essential although to date unknown threading of European
integration through the European Coal and Steel Community, a genuine
supranational organisation despite its mission-oriented mandate – would
indeed have been to Hume’s liking and to that of his Enlightenment
contemporaries. It has led to an outcome involving a claim to a single legal
space, centred on freedom, security and justice, to be implemented through
a united Europe (a fundamental goal for the Treaty on European Union
(TEU), Art. 2.1). In just a few years, this outcome has attracted in an
apparently irreversible way states long governed by dictators or shaken by
democratic crises, or left for a number of decades on the far side of
Europe’s wall.
Clearly, the European integration process has been neither linear nor
constant. On the contrary, it has had its moments of stasis and very genuine
crises (especially in the wake of the 2004 Constitutional Treaty), and has
constantly evaded the rigid framework of institutions and principles.
Despite these limitations – or better yet, features, as there appears to
be no benchmark for the EU’s development, a truly unprecedented
experience – Hallstein’s insight has certainly been proven true, and the
community based on the rule of law has played the role of a ‘gentle force’
and does so to this day.
How did this come to pass with no bill of rights, without Community
or Union primary law having anything resembling a catalogue of rights?
How do things stand today, and what is likely to occur now that the Lisbon
Treaty has entered into force? Such are the questions this chapter intends to
address, however briefly.
The interpretation offered here – and explained in the following
sections – is that the features of the European Community (EC) and then
the EU, along with the specific constitutional traditions of European states,
have had direct consequences for individuals’ fundamental rights.
Regarding the nature of the EC, its qualification as a community based on
the rule of law not only implies that its institutions and member states are
subject to judicial review on the compliance of their laws and regulations
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 203
with the basic constitutional charter that is the Treaty, but also that
individuals’ rights (and obligations, obviously) may under certain
conditions directly derive from this same source. Individuals come directly
under the new legal system, as subjects thereof, and this makes the system
stand apart from all other international legal systems. The EC of course
operates in a context of highly ‘constitutionalised’ European states –
especially following the dramatic events of the Second World War – where
fundamental rights are seen as an inalienable constitutional heritage, early
on (from 1950) transmuted into a shared heritage through the Council of
Europe’s European Convention on Human Rights (ECHR).
An inherent characteristic of the EC/EU system is that individuals
can assert rights directly and immediately, starting clearly with
fundamental rights, vis-à-vis their respective states (the judges of which are
obliged to apply relevant EC law) and European institutions. As the Court
of Justice summed up in its most recent ruling in this field (case C-305/05,
Belgian Bar Associations v. Council of Ministers, 26 June 2007), “fundamental
rights form an integral part of the general principles of law whose
observance the Court ensures, drawing inspiration from the constitutional
traditions common to the Member States and in particular the Rome
Convention”.
2.
Issues posited in the original 1957 EEC Treaty
The 1957 EEC Treaty assiduously avoided any reference to fundamental
rights and liberties, in accordance with functionalist criteria that sought to
achieve as much as possible in concrete terms without strong institutional
or political premises, whose time was deemed not yet to have come.
This same Treaty nevertheless provided for the economic liberties
essential to the emergence of the single market (establishment, circulation,
etc.), which were soon to be viewed by the Court of Justice as genuine
constitutional freedoms.
In addition to these functional freedoms required for the common
market, the Court of Justice set out to mark the absolute originality of the
EEC (destined to increase further with the later shift to the EC and the
subsequent establishment of the EU) through the case law it developed in
the early 1960s. Notable in this respect is the Court’s claim (in case 26/62,
Van Gend & Loos v. Netherlands Inland Revenue Administration, 5 February
1963) that not only states but also their citizens are the subjects of
Community law, and that the Community system is more than just an
204 | MARIO P. CHITI
agreement setting up reciprocal obligations among contracting member
states, because of the direct repercussions on Community subjects.
The individuals mentioned by the Community judges cannot but
have rights with respect to the Community, in addition to those they have
with respect to member states. This stance was taken with the knowledge
that the ever-growing sphere of Community law leads to legal situations
regarding individuals and that these individuals may invoke the principle
of direct effect (another original creation of the Court of Justice) in order to
have such situations appropriately taken into consideration by national
judges.
With economic liberties equated with fundamental rights and an
increasing number of rights deriving from Community law (considered in
the broader acceptance specific to European law, as legal situations
entailing benefits), the new legal system could no longer avoid re-positing
the issue of fundamental rights, as had the constitutions of the last two
centuries in various states.
The method adopted by the Court of Justice for the definition of
“general principles of Community law” followed this same orientation –
and one cannot overstress the fundamental role played by the institution in
the development of the legal grounding for European integration,
unparalleled in any known legal system. This method centred initially on
the identification of legal traditions common to member states. Clearly, in
identifying such general principles – source law with cogent legal force – in
the legality principle, the finality of law, equality and other principles as
well, the Court was moving progressively closer to the issue of
fundamental rights. These were indeed an essential part of the common
constitutional traditions of member states, furthermore asserted by the
Council of Europe’s ECHR, to which all EU member states had acceded.
It was therefore not unexpected that the Court of Justice should state,
as of 1969, in Erich Stauder v City of Ulm (case 29/69, 12 November 1969),
that “the fundamental human rights [are] enshrined in the general
principles of Community law and protected by the Court”. As of a
subsequent ruling, in Internationale Handelsgesellschaft mbH v Einfuhr- und
Vorratsstelle für Getreide und Futtermittel (case 11/70, 17 December 1970),
this position became a constant in the case law of the Court of Justice.
As pointed out by Federico Mancini (1989), “reading in Community
law an unwritten Bill of Rights thus constitutes the most incisive of the
Court’s contributions to the development of a Constitution for Europe”.
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 205
The Court was not solely interested in the development of
individuals’ rights, however, knowing that an essential aspect of its
innovative case law concerned the ‘communitarisation’ of a significant part
of national constitutional law, while stressing the ‘primacy’ of European
law and of the integration process of national and European legal systems.
This is already evident in the abovementioned Internationale
Handelsgesellschaft ruling, which reads “that the protection of fundamental
rights, whilst inspired by the constitutional traditions common to the
member states, must be ensured within the framework of the structure and
objectives of the Community”. Otherwise, recourse to the legal rules or
concepts of national law “would have an adverse effect on the uniformity
and efficacy of Community law”.
3.
Developments subsequent to the 1992 EU Treaty
With the establishment of the EU in 1992, fundamental rights (inevitably
one could say) were to find acknowledgement in the Maastricht Treaty.
After the Preamble’s confirmation of the “attachment to the principles
of…respect for human rights and fundamental freedoms and of the rule of
law”, Art. F (now TEU Art. 6) asserts that the EU is based on the
aforementioned principles.
But with the shift in the appraoch to the issue of fundamental rights
away from one essentially based on case law and towards a
constitutionalisation of these same rights in the EU Treaty, problems
deriving from their triple dimension (national, EU and ECHR) were to
come to the fore, along with issues of enforcement. One should bear in
mind that so far, the EU has not acceded to the ECHR, partly because of the
Court of Justice (which stated in opinion 2/94 that there was no jurisdiction
for accession to the ECHR, an expression of a different international legal
system). In addition, fundamental rights are acknowledged as part of the
“general principles of Community law”, with a specific location in the
sources of the legal system, and member states’ constitutional courts have
been reluctant to renounce their authority over the protection of
fundamental rights (recent rulings 348 and 349/2007 of the Italian
Constitutional Court are a case in point, as analysed in greater detail
below).
The solution found to these problems was the convening of a
Convention, a special ad hoc body, unprecedented in European law, the
very name of which was redolent of a glorious constitutional past.
206 | MARIO P. CHITI
Although not yet imbued with the significant distance vis-à-vis the
‘intergovernmental method’ that was to be the hallmark, soon after, of the
Convention that in 2003 produced the Treaty establishing a Constitution for
Europe, this first Convention worked quite autonomously from member
states and produced a text of considerable significance.
The Charter of Fundamental Rights of the European Union signed in
Nice in 2000 – although controversial and on some counts, such as its final
“general provisions”, unconvincing – bears witness to the evolution of a
number of ‘first generation’ rights: the right to engage in work is
supplemented by the right to seek employment and to pursue a freely
chosen occupation (Art. 15). The Charter also formalises rights that have
emerged in recent decades (such as the protection of personal data, in Art.
8; the rights of the child, in Art. 24; and the rights of the elderly, in Art. 25),
and reasserts original rights, such as rights vis-à-vis public administrations
(Art. 41, on the right to good administration), that give substance to EU
citizenship.
The atypical nature of the Charter drafting process was mirrored by
an equally atypical adoption, eschewing the forms provided for by the
Treaties, with an unprecedented “proclamation” on the part of the
European Parliament, the Commission and the Council in December 2000.
After the negative epilogue of the 2004 Constitutional Treaty, a number of
formal changes were introduced and in November 2007, the revised
Charter was adopted by a huge majority in the European Parliament. In
another atypical development, it was then once again “proclaimed” in the
Plenary Hall of the European Parliament by the Presidents of the
Parliament, the Council and the Commission.
As expected, the Charter’s originality – as a constitutional seal
appended to the new EU – elicited resistance and reactions. Indeed, no
specific value was ascribed to it and its insertion into the 2004
Constitutional Treaty, of which it formed Part II, contributed to the
subsequent crisis.
In spite of these difficulties, one could easily foresee that the Nice
Charter was to represent an irreversible outcome, and a part of the
Community acquis. It may not be binding, but advocates-general have often
referred to it with a view to substantiating their conclusions; court judges
have deemed it to be ‘a source of inspiration’; national courts have on
occasion made reference to it to corroborate their rulings; and the Italian
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 207
Constitutional Court has acknowledged its interpretative significance
(ruling no. 349/2007).
4.
Roles played by the Council of Europe and the European
Convention on Human Rights
In parallel with developments in the EU, the role played by the European
Court of Human Rights, designed to guarantee the rights addressed by the
ECHR, has considerably strengthened.
Following the 1994-99 reforms, the Strasbourg Court has become
more accessible to individuals and the range of issues it addresses has
broadened. The outcome of this has been particularly significant with
respect to states that have acceded to the ECHR, but on many points they
are still far from full compliance. The case of Italy is especially telling: over
recent years it has been ‘obliged’ to reform Art. 111 of its Constitution on
‘fair trial’, introduce subsequent legislative innovations (such as law no.
12/2006) and change its stance radically on property rights and
expropriation. (This last matter has for the time being been concluded with
the 29 March 2006 Scordino ruling of the Strasbourg Court and
Constitutional Court ruling nos. 348 and 349/2007.)
The ECHR appears to be a wedge driven between the Nice Charter
and national constitutions. As regards EU law, the issue is not so much one
of differing approaches (although that is partly the case) but rather the role
played by the Strasbourg Court, and its crowding out of the Court of
Justice. The latter’s case law attempts to combine the outcomes of the
former with its own, autonomous approach, but the end-product is not
always convincing. In any event, the Court of Justice has to consider the
Strasbourg Court’s case law as a given, insofar as the latter has sole
jurisdiction over interpretation of the ECHR.
More significant problems emerge in conjunction with national
legislation. The Italian case is typical in this respect, as a number of glaring
asymmetries have appeared, despite efforts to demonstrate that the ECHR
is substantively in line with corresponding national provisions. The most
obvious example is that of property rights and expropriation powers,
where various segments of Italian legislation – on many occasions deemed
compatible with Art. 42 of the constitution – have appeared to conflict with
property guarantees provided for in the ECHR (in Art. 6 and in Art. 1 of the
1952 Additional Protocol). To put it briefly, while the constitutional rule on
property also expounds on its ‘social function’ and authorises various
208 | MARIO P. CHITI
adaptations regarding modes of acquisition and use, the ECHR – as
interpreted by the Strasbourg Court – does not allow for fragmented
protection of property rights.
Yet the relevance (and primacy) of the ECHR is not matched, in the
Italian legal system, by a formal role, and the ECHR was inserted into the
system through a regular adaptation law, as is the case with all
international treaties. Although the ECHR addresses issues that are
objectively constitutional (fundamental rights, for instance), until the
reform of the Constitution’s Art. 117.1, one simply could not raise serious
questions about the specificity of the ECHR in comparison with other
international obligations. Only recently have some judges, in order to
acknowledge the primacy of the ECHR, attempted to stretch general rules
through the construct (of Community origin and specific solely to that
system) of a disapplication of domestic law conflicting with the ECHR’s
provisions. Still, the means chosen do not hold water legally, insofar as
ECHR’s rules cannot be characterised as having ‘useful effect’.
5.
The 2007 Treaty and the recent Treaty of Lisbon
Luckily the system is now moving towards clarification of its more
significant points under the combined impact of European and domestic
factors.
As regards the EU, the Lisbon Treaty includes – in the section
modifying the Treaty on European Union – a number of provisions that
clearly set out the new centrality of the rights issue. A second paragraph
has been added to the Preamble, according to which from the inheritance of
Europe “have developed the universal values of the inviolable and
inalienable rights of the human person, freedom, democracy, equality and
the rule of law”.
Then comes a definite clarification that the Charter of Fundamental
Rights of the European Union “shall have the same legal value as the
Treaties” (Art. 6, replacing TEU Art. 6). The Charter thus remains an
autonomous text with respect to the two new Treaties – thereby
accommodating a mainly British request, aimed at attenuating the
constitutional form of the new EU Treaty. But this may well have a
paradoxically positive effect, insofar as it positions the Charter as
something that comes before and stands aside from the TEU, similar in that
regard to the Bill of Rights in the constitutional system of the US.
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 209
Other elements of clarification concern the EU’s commitment to
accede to the ECHR (Art. 6.2, new) and the (re)-positing of fundamental
rights guaranteed by the ECHR within the general principles of EU law
(Art. 6.3, new).
All issues have not been solved by the Lisbon Treaty (the
enforcement of rights and the role of the Court of Justice, in particular) and
others have emerged (the peculiar in/out position granted to the UK and
Poland, for instance). Even so, European observers are used to compromise
solutions and the new Treaty in any event includes a number of innovative
provisions.
6.
The Constitutional Court in Italy and Europe’s international
obligations
With ratification and the entry into force of the Lisbon Treaty through a
political and institutional process that was less daunting – on paper – than
the one for the 2004 Constitutional Treaty, the most topical and
controversial issue for Italian law has to do with the reciprocal interplay of
constitutional rights and those rights guaranteed by the ECHR, in light of
the aforementioned reform of Art. 117.1 of the Italian Constitution.
The issue was finally addressed frontally by the Constitutional Court
in its rulings of 2007 (nos. 348 and 349), the significance of which are
inversely proportional to their media coverage (discounting the
conclusions regarding expropriation, on which the debate was based),
almost as if fundamental rights were a topic so arcane as to be reserved to
the most exclusive of sects.
The two rulings in question are complex, inter alia because the
general disquisition regarding the scope of Art. 117.1 was entrusted to two
separate rapporteurs who used similar, but not identical arguments. The
rulings are addressed here from the sole point of view of their general
implications.
The Constitutional Court put forth the following main arguments:
a)
At the time of the ruling, the legal system underpinning the ECHR
was still legally distinct from that of the EU (the Court was
nonetheless well aware of the imminent absorption by the EU of the
issue of fundamental rights).
210 | MARIO P. CHITI
b)
The ECHR is legally particular compared with other international
agreements, if only for its uniform guarantee of all fundamental
rights.
c)
The relationship between the ECHR and national legal systems
remains “robustly governed by each national legal system”.
d)
The reform of Art. 117.1 finally fills the gap and “connects, from its
systemic position within the Constitution, to the framework of
principles that even previously guaranteed compliance, at the
primary level, with a number of international obligations taken on by
the State”.
e)
The new provision establishes a flexible reference to the ECHR,
operating as an interposed rule.
f)
The European Court of Human Rights retains jurisdiction in terms of
the centralised interpretation of the ECHR, but in the last resort it
shall behoove the Constitutional Court to check that rules specified in
the ECHR, and referred to on occasion, do indeed provide a degree of
fundamental rights’ protection at least equivalent to that provided by
the Italian Constitution.
Legal arguments are shared on a variety of points, such as the
erroneous use made by some Italian judges of disapplication regarding
domestic laws, and the originality of the new Art. 117.1 compared with Art.
10 and other ‘internationally-geared’ provisions contained in the
Constitution. Overall, however, these arguments give the feeling that the
legal system of the ECHR has been viewed as a variant of international law
that may well be significant, but has been qualified as a mere ‘interposed
rule’ with respect to the constitution. The specific features of the ECHR,
both per se and in light of the use that EU law makes of them, should have
led to the ECHR being slotted in differently from what is the rule for other
international obligations. And the same can be said of the power the
Constitutional Court has retained in terms of “checking that the
appropriate balance is struck between the need to guarantee compliance
with international obligations as set out in the Constitution and that of
ensuring that so doing entails no vulnus for the Constitution proper”.
On the whole, these two rulings leave one with the sense that after
having digested the position taken by the Court of Justice on EU law –
painfully, and only partially at that, as evidenced by the issue of legal
system unitarity – the Constitutional Court decided to retain, as a matter of
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 211
principle, a ‘defensive’ role with respect to rights grounded in the
Constitution. It did so notwithstanding that it will in the end have to accept
the conclusions of the Strasbourg Court, even on issues where the two
approaches are objectively different. Expropriation, which prompted the
two above-mentioned rulings, illustrates the point.
7.
Pending issues
That being stated, there are still a number of unresolved issues and
applicative difficulties within EU law. In the context of the new EU Treaty
(as modified by the Lisbon Treaty), fundamental rights derive from both
the Charter and the ECHR, while also being the product of member states’
shared constitutional traditions. As regards the organisation of source law,
the rights guaranteed by the ECHR and those deriving from common
constitutional traditions are equally part of Union law, as general
principles.
The ensuing model is not blindingly clear. Actually, now that the
revision process has come to a close, on the one hand fundamental rights
provided for in the Charter shall have constitutional rank (the Charter
having been given the same legal value as the Treaties, as noted earlier),
while on the other, rights guaranteed by the ECHR or derived from
common constitutional traditions shall be deemed ‘general principles’, and
therefore not have constitutional rank.
Furthermore, the acknowledgement of the legal value of the Charter
is surrounded by a number of cautionary statements – probably too many.
Among them is the Protocol on the application of the Charter to Poland and
the UK, which states that “whereas the Charter reaffirms the rights,
freedoms, and principles recognised in the Union and makes these rights
more visible, [it] does not create new rights or principles” (emphasis added).
Yet, a number of rights contemplated therein are absolutely novel.
8.
Protecting rights – The EU’s basic remit
However significant these pending problems may be, clearly no legal
system has developed a system entirely based on the rule of law and
guaranteed fundamental rights on a par with the EU. More specifically,
freedom, democracy and the solidarity made possible by a social market
economy have become, in just a few decades, such a given and appreciated
fact of life for EU citizens that they are now viewed as ‘natural’, rather than
212 | MARIO P. CHITI
as the positive outcome of a far-reaching policy. And yet nothing is as
constructed and deliberate as this main connotation of the EU.
The ‘rule of law’ and fundamental rights thus play a dual role: within
the EU legal system they represent the system’s basic grounding,
developing the premises for EU citizens’ new sense of belonging;
externally, they act as a driver both for countries interested in joining the
Union and for those who enter into relations with the EU.
EU citizens now need to become aware that the EU is more than any
other a system of actually functional and guaranteed freedoms. European
identity has to be based on this pillar, which the Union itself has built,
rather than on the dubious legacy of the past (that European inheritance
that was the focus of so many arguments in 2004, on the occasion of the
Constitutional Treaty).
As noted above, externally the EU exercises its drive through the
gradual extension – always the product of ‘gentle force’, never that of
coercion – of democracy and common security. Thanks to the peculiarity of
a European space that was not predefined, the EEC originally founded by
six member states has extended in stages to its current 27 members,
delineating for each and every one far-reaching adaptations. The impact of
the EU goes well beyond its changing borders, positively influencing states
interested in joining (from Turkey to the Balkans) as well as states linked to
it through specific trade relations. The EU is hence becoming a ‘beacon of
liberty’ for the world at large.
It was therefore essential that in the ratification process of the new
Lisbon Treaty, regardless of how formally centred it may have been on the
role of national parliaments, that European public opinion (the most
informed and sophisticated there is worldwide) was made aware of the
crucial role of rights and the rule of law. A new ‘European citizenship’ will
not come into being through complex institutional and economic
mechanisms, but through the effectiveness of a system where “law
determines power, and power does not determine law” (Pöttering, 2007).
References
de Giovanni, B. (2002), L’ambigua potenza dell’Europa, Napoli: Guida.
Louis, J.V. (1989), L’ordinamento giuridico comunitario, Commissione delle
Comunità europee, Bruxelles-Luxembourg.
FROM THE RULE OF LAW TO A COMMUNITY OF RIGHTS | 213
Mancini, F. (1989), “The Making of a Constitution for Europe”, Common
Market Law Review, Vol. 26, winter.
Padoa-Schioppa, T. (2001), Europa, forza gentile, Bologna: Il Mulino.
Pöttering, H.-G. (2007), Discorso al Parlamento europeo in occasione
dell’approvazione definitiva della Carta dei diritti, November.
12. DEMOCRACY IN THE EUROPEAN UNION
STEFANO MICOSSI*
U
p until the early 1990s, the European Union’s popularity with its
citizens had been on the rise, despite a lack of active involvement in
European affairs; subsequently, it appeared to drop radically. The
Maastricht Treaty ratification had to overcome widespread resistance from
various quarters: public opinion, national parliaments, the German
Constitutional Court. The impasse in the 15 years of negotiations on
institutions that followed the Maastricht Treaty projected an image of
paralysed decision-making. A new wave of discontent and anti-integration
sentiment has followed the accession of 12 new member states in 2005-07.
The rejection of the Constitutional Treaty in the French and Dutch
referendums in 2005 and the difficult ratification of the subsequent Lisbon
Treaty in 2008-09 have appeared to confirm the detachment of public
opinion in Europe from the institutions of the Union. The ‘permissive
consensus’ that had until then entrusted European elites with developing
integration seems to have evaporated. To some, this foreshadowed a
collapse of the Union and a return to intergovernmental forms of
cooperation.
According to many observers, the reason lay in a lack of democracy:
in the dual sense that common policies had diverged from voters’
preferences (output legitimacy) and that decision-making mechanisms
appeared to lack the basic requirements of transparency, accountability and
democratic involvement (input legitimacy). The issue of democracy has
taken on greater prominence since the Maastricht Treaty, which set up the
Union and extended its scope to monetary affairs as well as to two new
The author wishes to thank Carlo Bastasin, Sabino Cassese, Giandomenico
Majone and Gian Luigi Tosato for their useful comments, and Fabrizia Peirce for
invaluable research assistance.
*
214 |
DEMOCRACY IN THE EUROPEAN UNION | 215
political ‘pillars’ for foreign policy and internal security: areas that had
until then been the jealously guarded prerogatives of member states, under
national parliamentary control.
In the 15 years since Maastricht, however, integration has moved
forward at a fast clip, with enlargement to ten new member states and the
achievement of monetary union. Major progress has also been made under
the so-called ‘second pillar’, with strong support from public opinion: the
Amsterdam, Nice and Lisbon Treaties have extended application of the
Community method of decision-making to matters of border control, civil
and criminal justice and law enforcement affairs; Europol has been made a
European agency. Finally, despite a drawn-out slowdown in growth, the
past decade has witnessed the full implementation of the Financial Services
Action Plan (FSAP) and the approval of the services Directive, which
covers on a residual basis all economic activities not yet liberalised under
internal market legislation.
Two years down the road from the disastrous referendums in France
and the Netherlands, member states have reached, with the Lisbon Treaty,
an agreement on institutions that upholds the main innovations laid out in
the Constitutional Treaty – albeit without the ‘signs and symbols’ of a
constitution, which were strongly opposed by public opinion in quite a few
member states – and basically settles political issues left pending, after
Maastricht, in the operation of common institutions. The Treaty has thus
specified the allocation of competences between the Union and the member
states, the balance of powers between the Council, the Commission and the
European Parliament, as well as rebalanced, within the Council, the voting
weights of large and small countries. It has also put an end to the rotating
Presidency of the European Council, strengthened the powers of the High
Representative for the Common Foreign and Security Policy and vastly
increased the number of topics subject to majority voting.
Thus, it appears that feelings of paralysis in decision-making may be
widespread in the media and public opinion alike, but they are not
confirmed by fact. Nor has the pace of decision-making been slowed by the
accession of new member states, although some complain about the
increased complexity of Council decision-making.
Public opinion support for European institutions plummeted after
Maastricht, but has recovered somewhat since the middle of the 1990s: as
shown in Figure 1, up until 2008 over 50% of respondents to a
Eurobarometer survey continued to view participation in the Union as
216 | STEFANO MICOSSI
positive (although a drop in support below 50% is expected due to the
current deep economic crisis, which is feeding disillusionment with the
Union’s ability to respond effectively). Opinion polls also show that among
national and Community institutions, the European Parliament continues
to enjoy considerable prestige, although declining voter participation in
European elections might seem suggest the contrary.
Figure 1. Public opinion on participation in the EU*
(%)
75
70
65
60
55
50
45
1974
1976
1978
1980
UE-9
1982
UE-10
1984
1986
1988
UE-12
1990
1992
1994
1996
UE-15
1998
2000
2002
2004
2006
UE-25
2008
UE-27
* % of positive answers to the question: “Do you think that your country’s membership of the European
Union is a good thing?
Source: Eurobarometer.
That said, the issue of democracy is perhaps better addressed in
terms of adjusting a political system that has very considerably extended its
scope and thus requires a corresponding extension in the scope of its
democratic controls; but the lack of democracy does not appear to be the
main cause of a crisis that, as will be argued, may well have stemmed more
from the weakness of governments than from the opposition of the
governed. Nor should one expect an extension in the scope of democratic
controls to solve all of European society’s pending problems, from
DEMOCRACY IN THE EUROPEAN UNION | 217
unemployment to immigration, exclusion and security, in a world where
the pace of change is controlled neither by individual states nor by the
European Union.1
1.
The need for democratic legitimisation
The Union is a peculiar polity, without the powers of coercion and linkage
to a geographical territory typical of nation states; its powers are spread out
over a number of institutions and procedures, each of which has its own
legitimisation mechanisms (Lord & Magnette, 2004). These powers have
been bestowed by the member states, which have democratic institutions
and control the Union’s activity through the European Council of Heads of
State and of Government and the Council of Ministers. One must therefore
first of all seek to clarify what is meant by the requests for more
legitimisation channels.
The original design of the European Communities’ competences and
decision-making mechanisms reflected a technocratic and functionalist
approach, under which Europe’s higher interests were embodied in the
European Commission, a non-democratic body with exclusive powers of
legislative initiative and entrusted with the impartial custodianship of the
Treaties. The Council was the necessarily opaque forum for political
compromise among the member states; direct democratic legitimisation
was confined to the European Parliament, initially assigned weak
consultative powers, but later endowed with full co-decision of legislative
measures in most EU matters (including, after the Lisbon Treaty, the EU
multi-annual financial perspectives and yearly budgets).
One problem has been that decisions on the extension of the Union’s
functions were hidden behind the veil of small incremental steps justified
by functional requirements – a solution devised by Monnet to pursue the
European construction following the rejection of the European Defence
Community by the French National Assembly in 1954. This intrinsically
undemocratic strategy was facilitated by the integration process’s
1 This clearly does not rule out that European policies may yet improve in this
respect, lending greater consistency to member state policies and strengthening
their efficiency through better coordination. On this, see for instance the Sapir
Report, containing ambitious proposals to revise common economic policies (Sapir
et al., 2004).
218 | STEFANO MICOSSI
indeterminate finality, which allowed supporters of the political union
concept to co-exist with those who simply wanted a large open market. The
fall of the Berlin Wall added further uncertainty regarding borders, as
vagueness prevailed as to where the enlargement process would stop
(Majone, 2005).
Developments in the wake of the failed Constitutional Treaty
referendums in France and the Netherlands have radically changed this
picture. First of all, decisions on enlargement were shifted to the
political/constitutional level as a number of countries decided that they
will in the future submit all enlargement issues to popular referendum;
moreover, in the Lisbon Treaty political discretion in decisions to admit
new members will be constrained by the need to respect the so-called
‘Copenhagen criteria’ (Article 49 TEU).
More importantly, the Lisbon Treaty has somewhat set in stone the
attribution principle. It has established member state residual jurisdiction
in all matters not explicitly devolved to the Union (Articles 4 and 5 TEU)
and – through new Protocols on the role of national parliaments in the
European Union and the application of the principles of subsidiarity and
proportionality – it has introduced political and judicial procedures to keep
in check the Union’s competences. The risk of jurisdiction ‘creep’, eluding
democratic control, now appears to be very much a thing of the past.
Furthermore, by removing the ‘signs and symbols’ of a constitution, the
Lisbon Treaty has also removed indeterminate finality from the picture: it
is now clear that the Union is not destined to become a state and that the
current balance between federal and confederal dimensions is here to stay.
Therefore, the Lisbon Treaty has removed a number of obvious flaws in the
Union’s democratic legitimisation.
Some have claimed that democratic legitimisation of Union decisions
is not possible, as there is no demos, no common identity or sufficiently
shared values to guide institutional and political action (Dahrendorf, 2001
and Schmitter, 2000). True, a weak common identity makes it difficult to
refer back to a single popular support base; but it does not preclude the
development of partial mechanisms legitimising individual decisions or
decision-making processes; nor does it preclude forms of legitimisation
linked to the output of common action, insofar as said action meets voters’
needs that individual nation states are no longer in a position to satisfy.
The lack of demos is mirrored in the restrained use of majority
voting: the extensive discussions and long negotiations required for
DEMOCRACY IN THE EUROPEAN UNION | 219
achieving consensus legitimise decisions that would not be acceptable were
they imposed by a majority of member states upon a minority of dissenting
member states.
Moravcsik (2006), conversely, has claimed that further channels of
democratic legitimisation are not required, for two main reasons. Firstly, he
sees the European Union as the product of an intergovernmental
agreement, embodied in the Treaties, that is “pragmatically efficient,
normatively attractive and politically stable”: a satisfactory negotiated
equilibrium, periodically modified when the need arises, and otherwise
reconfirmed, and that therefore reflects the requirements of participating
states. Secondly, he maintains that increasing the opportunities to
participate and make decisions does not necessarily generate more
participation, nor does increased participation always generate more
legitimisation. In fact, in his view, declining voter participation in elections
to the European Parliament may confirm that the greater scope for
democratic participation provided for by the Treaties has largely been
unused; and where and when it has been used, this has been to express
dissatisfaction with the domestic policies of national governments (a point
also made by Bogdanor, 2007, Hicks, 1999 and Schmitter, 2000).
Moravcsik considers that this is due to the nature of the tasks
undertaken by the Union, which at least originally were of a mainly
technical nature, with low general political salience for most citizens:
international trade, development assistance, agriculture, safety standards
for manufactures and services.
This is a minority view, however. A majority of political scientists
and constitutionalists conversely stress that the Union’s institutions have
now taken on an autonomous role, even vis-à-vis the member states, in
defining the rights and political, economic and social conditions of
individuals; they go on to assert that these powers cannot be taken back by
the member states, inter alia, because of the unanimity requirement for
Treaty revision; and precisely for this reason deem that the accumulation of
powers in Union hands has already exceeded the threshold requiring
autonomous safeguards against possible abuses (Schmitter, 2000; Lord,
2004; Lord & Harris, 2006 and Schmidt, 2006). Such possible abuses concern
first and foremost the Council, insofar as it can elude national
parliamentary control when ruling at the Union level.
Moreover, as has been mentioned, further expanding the Union’s
political agenda and activities through functionalist methods is no longer
220 | STEFANO MICOSSI
possible. Further political and institutional progress can only stem from
deliberate decisions on the part of member states acting in full
accountability vis-à-vis their public opinions and parliaments.
The co-existence within the Union of two distinct levels at which
public institutions exercise their power – federal and confederal – generates
an intrinsic need for corresponding democratic legitimisation mechanisms
and channels, focusing on the one hand on member state representation in
the Council, and, on the other, on citizen representation in the European
Parliament. This dual representation has now been explicitly incorporated
in the Lisbon Treaty (new Article 10, para. 2, TEU).
At the member state level, national parliaments and the public at
large need to be informed of the decisions to be taken within European
institutions and be able to influence the positions of their own national
representatives to the Council. Separate control and legitimisation channels
are also required at the Union level since its acts and decisions acquire
autonomous value with respect to individual member states’ inputs:
because of the use of qualified majority voting in the Council, and the
attendant need to reach compromise solutions that may partly sacrifice
national interests; because of the constitutional weight of principles of
primacy and direct effect of community legislation; and because of the role
the Community judicial system can play in the defence of individuals’
rights, even vis-à-vis the member states.
The revealed preference theorem that is at the root of Moravcsik’s
analysis of negotiated equilibrium among Union countries supports this
conclusion. Over the last three decades there has been a constant increase
in the Union participation and control mechanisms, through the European
Parliament and national parliaments alike, which have supplanted and
taken over the role initially played by organised economic interest groups.
Various other channels have been opened that provide individuals with
direct access to European institutions: examples include the European
Ombudsman and the right to petition European institutions in one’s
mother tongue, introduced by the Maastricht Treaty, and broader rights for
individuals to institute proceedings before the European Court of Justice.
The new Title II of the Treaty on European Union adopted in Lisbon,
“Provisions on democratic principles”, while carrying over from the
previous Treaty provisions on citizenship, specifies new rules on the right
of Union citizens to take part in its democratic life, including the right of
legislative initiative (Art. 11, para. 4, TEU). This same section also contains
DEMOCRACY IN THE EUROPEAN UNION | 221
detailed provisions regarding national parliament participation in the
functioning of the Union (see Art. 12).
A mapping of decision-making procedures in the various areas of
common action confirms a growing demand for democracy at Union level
that has been met. The extension of qualified majority voting in new areas –
which reduces the control exercised by individual member states over
Council decisions – was always matched by an extension of European
Parliament powers. This occurred with the Single Act, which applied
majority voting to decisions regarding the internal market, subsequently
leading, in the Maastricht Treaty, to the introduction of co-decisions
between the Council and Parliament; it also occurred with the Lisbon
Treaty when issues of immigration, justice and law enforcement came
under Community jurisdiction and co-decision was made the normal
decision procedure.
Similarly, the Commission’s exclusive right of legislative initiative
has mainly applied to ‘negative’ integration, i.e. decisions that remove
barriers to the internal market (Majone, 2005), while in matters such as the
coordination of economic policies or foreign and security policy, the
initiative has remained in the hands of member states, safeguarding the
prerogatives of national parliaments. The Lisbon Treaty has decided that in
“specific cases provided for by treaties” procedures followed for the
adoption of directives, regulations or decisions may waive Commission
participation (Article 289, TFEU).
Nor do facts confirm low public opinion interest in Union decisions.
Public debate on issues such as the EU Directive on services, the accession
of Turkey or the mention of Christian values in the Preamble to the
Constitutional Treaty elicited active involvement of intellectuals, political
parties and large segments of European society.
2.
Control and democratic legitimisation mechanisms
There is widespread feeling that the existing democratic control
mechanisms within the Union are weak and inadequate; as mentioned
above, criticism has focused both on the input into the decision-making
dimension and the substance of decisions, or the output dimension. Let us
look into the former first.
222 | STEFANO MICOSSI
2.1
Elections and referendums
The main mechanism of democratic participation lies in popular voting in
elections and referendums. As noted above, voter participation in elections
to the European Parliament is not high, at under 50% of the electorate, and
it dropped by about twenty percentage points between 1979, the first
election, and 2004.2 Furthermore, voter positions on European matters have
appeared to strongly correlate with the popularity of national governments
in office: so much so that some observers have characterised European
elections as ‘second-round’ elections, used to send signals on domestic
rather than European politics (Hicks, 1999 and Schmitter, 2000).
Low voter participation may however stem from reasons other than
disaffection from Community institutions (Lord, 2004): it may for instance
reflect the fact that these consultations have little impact on the general
thrust of European affairs and the identity of those who will be chosen to
govern. Alternatively, in a more positive view, low voter participation may
reflect the basic consensus of leading political groups as to the general
direction of European affairs: when positions advocated by parties and
candidates appear to be sufficiently aligned with the preferences of the
median voter, the incentive to go out and actually vote is reduced. In fact,
the remoteness and complexity of European issues tends to generate
concordant positions of national parties, with little role for the traditional
left/right cleavages (see also Bastasin in this volume).
That said, the central issue remains the absence of a unified public
space at the European level where it would feel relevant to express one’s
personal preferences. This weakness in the European political system is not
going to be remedied overnight; it can only fade gradually with the
emergence of European political parties and an increased perceived
relevance of European issues in everyday life.
In fact, European political groupings have turned into stable
organisations over recent years and have begun to focus their meetings on
specific European issues, according to timelines linked to those of the
Some observers have claimed however that decline in voter turnout largely
reflects spurious statistical phenomena in voter demographics, in particular the
accession of countries where voter turnout is traditionally lower; when data are
corrected for such phenomena, the downward trend is less strong (Franklin, 2001).
2
DEMOCRACY IN THE EUROPEAN UNION | 223
European Council. In their comprehensive study of the voting behaviour of
members of the European Parliament, Hix et al. (2007) conclude that
“voting along supranational party lines gradually replaced voting along
national party lines”.
The process could be speeded up – based on the new powers
bestowed on Parliament by the Lisbon Treaty – if national parties were to
take the opportunity of European electoral campaigns to make explicit their
preferences regarding the Union’s budget and other Union policy issues;
alas, this did not happen in the course of the June 2009 European elections.
Conversely, the idea that the President of the Commission should be
elected directly by voters seems unconvincing: politicising the Commission
would be incompatible with the Commission’s function as arbiter of Treaty
application and its exclusive power of legislative initiative, which also
assumes a shared, non-partisan vision of the integration process. For the
moment, no such radical change in the institutional equilibrium of the
Union seems imminent.3
Equally unconvincing is the idea that the democratic gap could be
bridged by resorting more frequently to referendums: the dangers inherent
in the recourse to direct democracy for the settlement of complex issues are
increased, in the case of European issues, precisely by the lack of demos and
the absence of strong collective identification with European institutions.
2.2
The role of national parliaments
At the member state level, what matters is adequate control by national
parliaments over the actions of governments and administrations within
the Council, which constitutes an indirect channel of democratic control by
citizens over Union decisions.
National parliaments play a central role in the approval of Treaty
modifications, which constitute the Union’s primary law; in many member
states this approval comes under constitutional procedures. Similarly,
decisions on the Union’s financial resources require ratification under
3 The increased powers granted to the European Parliament in the appointment of
the President of the Commission do not contradict this statement, as the
appointment also requires the agreement of the European Council and a broad
consensus within both institutions.
224 | STEFANO MICOSSI
national fiscal procedures since they imply funding by state budgets.
Clearly, national parliaments’ powers are greater for Council decisions
adopted under the unanimity rule, where European Parliament
involvement is weaker. Since such decisions have considerable political
and institutional significance, powers of scrutiny are usually exercised with
high degrees of incisiveness and often with active public opinion
participation. Conversely, national parliament control is inevitably weaker
over Council decisions regarding Union directives or policies where
majority voting is the rule.
This is why some observers have claimed that transferring functions
to the Union implies shifting the balance of powers towards executive
powers, which can avail themselves of considerable discretion when
negotiating compromises within the Council, as well as towards
bureaucracies, which cooperate in the implementation of Community
norms within Council Committees. Both sets of institutions, far removed
from the public eye, can collude with the Commission and with segments
of the organised interest community, according to vertical filières that can
use the Union to bring about decisions that would not be feasible at
national level (Chryssochoou, 2003 and Maurer et al., 2000).
Some member states – in particular Denmark and the United
Kingdom – have addressed this issue by adopting tight procedures to
provide guidance and oversight for government behaviour within
European institutions, while in other cases parliamentary procedures
appear less incisive and could be strengthened (Hicks, 1999 and Lord,
2004).
That said, majority voting within Council and co-decision with the
European Parliament rule out rigidly binding mandates that would
preclude all compromise; similarly, any direct intervention by national
parliaments in European decision-making would surely entail decisionmaking paralysis (see Manzella elsewhere in this volume). Democratic
control must therefore be resolved through the Union’s mechanisms, that
is, mainly via scrutiny by the European Parliament.
One noteworthy exception to this conclusion concerns the role of
national parliaments in defending subsidiarity, as in the Treaty of Lisbon:
violation of the subsidiarity principle would indeed amount to an
infringement of member state prerogatives by Community institutions,
which national parliaments are fully entitled to oppose. Should conflicts
DEMOCRACY IN THE EUROPEAN UNION | 225
arise and not lend themselves to settlement, the European Court of Justice
will have the last word.
2.3
Control and democratic legitimisation at the Union level
The Union is a peculiar polity where power is spread out over multiple
centres and is exercised through various decision-making procedures –
which currently number about thirty.4 It features not only frequent
dissociation of territorial and functional jurisdictions, but also variability in
the criteria defining insiders and outsiders with respect to the exercise of its
powers, both functionally and territorially (Schmitter, 2000). For this
reason, as pointed out earlier, it has been described as a polity with
undefined borders. The European Parliament, the main expression of
popular will at the Union level, has up till now only fully intervened in
decisions regarding the so-called first pillar, but this will change, as has
been described, with the Lisbon Treaty.
In addition, debate on European issues tends to elude the left/right
divides typical of national political systems and break up on a case-by-case
basis into different member state and interest group coalitions: this does
not favour linkages between national political debates and decisions to be
taken at the European level. In fact, voting patterns in the European
Parliament reflect motivations that can rarely be traced back to traditional
political stances within member states; and national public debate on
European issues tends to run along pro- and anti-European lines, which are
also poorly correlated to traditional party divides (see Hicks, 1999 and
Bastasin in this volume).
Finally, as noted by Majone (2005), the Union is not organised
according to the division of powers paradigm typical of Western
democracies, but according to a model where powers are shared among
stakeholders, as in pre-modern European polities: member states, the
European Parliament, Community technocrats, social groups standing for
organised interests and even magistrates participate variously in decisionmaking and procedures, depending on the topic and the coordination
problem to be resolved.
See European Convention (2002), Final Report, European Convention Working
Party IX on Simplification, CONV 424/02, 29 November 2002.
4
226 | STEFANO MICOSSI
The two most emblematic illustrations of this model are the so-called
‘Community decision method’ and the ‘networked’ participation of
organised interest groups in decision-making processes. Under the
Community method, the Commission puts forth proposals for directives
and decisions, Council and Parliament reach decisions together according
to procedures that combine varying degrees of majority voting and
consensus, depending on the intensity of national preferences. If the
Commission does not agree to the amendments agreed by Council and
Parliament, it may withdraw its proposal; absent such a text, Council and
Parliament cannot reach a decision. In practice, each of the three bodies
needs the other two to come to a decision.
In the exercise of its power of initiative, as in that of guardian of the
Treaty, the Commission’s function can perhaps best be understood not as a
supra-national independent interpreter of shared public interests, as
envisaged by its founding fathers, but as a technical power: in other words,
the Commission can be seen more as an executive agency and a judge, than
a government. And in fact, its powers are specifically defined by the
treaties and in many cases are exercised on Council delegation of authority.
With the extension of the Union’s ‘political’ remit, there has been a constant
increase in the Council’s and Parliament’s weight in decision-making,
whereas the Commission’s role has been limited to one of technical support
and secretariat.
Nor is the Commission’s power of initiative exercised as if it were
absolute: in fact the Commission responds to requests from member states,
organised interest groups and Parliament. Over the last few years, the
balance of such influence has shifted significantly towards Parliament,
which approves the Commission when it is appointed, may dismiss it with
a vote of no-confidence and controls its budget.
As for networks, the Euro-polity has from the very onset bestowed a
privileged status on associations representing organised economic interests
at the European level; it has often encouraged and financed the setting up
of such bodies. Over time, producer organisations were joined by trade
unions, consumers, environmentalists and ‘single issue’ advocacy groups;
many regions have set up representation offices in Brussels. These
organisations have become the focal point for networked, extended
communities of interests in the member states, which rely on the network
to take part in Commission and Parliament consultation processes, publicly
debating the merits of measures as they are being developed, and standing
DEMOCRACY IN THE EUROPEAN UNION | 227
in on the drafting of legal provisions, to which they may contribute with
their technical input.
Similar developments have targeted public administrations and
agencies as well, following the Single Act. Within the Union, the
application of common legislation is entrusted to the member states (Article
10 of the Treaty establishing the European Community). Qualified majority
voting was introduced in the Council for internal market measures in
parallel with the setting up of Council Committees made up of member
state representatives and (as a rule) chaired by the Commission, entrusted
with coordinating the application of common legislation. These
Committees went on to become the hubs of national public
administrations’ specialised functional networks; through these, vast
swathes of civil servants have become the voice of national interests within
Community institutions and the voice of the Community within national
bureaucracies. The European Parliament has gradually developed powers
of scrutiny geared to their activities, thereby controlling the exercise of the
powers delegated to them and politically impacting their work.
Regulatory agencies – set up to provide continuity and independence
to the executive in fields such as competition, financial market supervision,
food and environmental security (Majone, 1996) – have also established
their specialised networks, the hubs of which are the committees of
national regulators where officials define regulatory guidelines and review
implementation issues. European Parliament involvement in this area has
been considerably less, as independence from political interference is an
essential rationale for such agencies.
This increasing number of networks has contributed in no small
manner to the legitimisation of Community institutions vis-à-vis various
constituencies, through widespread participation, the emergence of
broader bases for consensus on Community institutions’ legislation and
decisions, and the introduction of counterweights to the various decisionmaking centres. To some extent, this may weaken the European
Parliament’s powers of guidance and control. But the increase in the
number of legitimisation channels thus brought about does strengthen the
Union (see Cassese, 2002 and elsewhere in this volume), in a complex
transnational system where the development of channels of representation
and communication between representatives and those they represent
remains limited.
228 | STEFANO MICOSSI
Potential conflict between various legitimisation channels in turn
induces adjustments in the way the system operates, through a continuous
process of ‘constitutional deliberation’, a salient feature of European
institutions (Lord & Magnette, 2004 and Cassese in this volume). Public
opinion regarding the impact of internal market common policies was thus
taken on board as of the Amsterdam Treaty, through a revision of Article
95, which constitutes the main legal basis for internal market legislation,
and the introduction of the new Article 16A on public services, which
extended the scope of national public interest protection with respect to the
application of common legislation.
An apparent blow to the democratic legitimacy of the Union has now
come from the German Constitutional Court decision that has declared the
compatibility of the Lisbon Treaty with the constitution,5 but which has
(re)asserted that the Union is not a federation, that sovereignty only lies
with the member states and that the European Parliament cannot claim to
represent European citizens, due to its skewed representation formula that
favours small member states. In reality, these positions are not new, they
were already stated in the decision that opened the way to ratification of
the Maastricht Treaty, and they do not contradict the normal functioning of
European decision-making. Their real significance lies in the enhanced
safeguards that they posit for the possibility, opened by the Lisbon Treaty,
to change decision-making procedures by unanimous deliberation of the
European Council: the German Constitutional Court has indicated that any
such decisions will have to be ratified by the national parliament –
although it is not clear under what procedures, constitutional or ordinary.
But such passage would in all likelihood have been inevitable anyway,
since under the Lisbon Treaty any national parliament would be able to
oppose such a change.
2.4
Popular legitimisation and constitutionalism
Mény (2002) has argued that popular dissatisfaction with democracy has
increased because of the larger role played by ‘constitutionalist’ or ‘nonmajoritarian’ mechanisms in the exercise of public powers; this concerns
member states as much as the European Union. Over the last few decades
Cf. Federal Constitutional Court , Judgment of 30 June 2009, (2 BvE 2/08, 2 BvE
5/08, 2 BvR 1010/08, 2 BvR 1022/08, 2 BvR 1259/08 und 2 BvR 182/09 ).
5
DEMOCRACY IN THE EUROPEAN UNION | 229
these independent powers have taken on particular significance in market
regulation, through the setting up of independent agencies (Majone, 1996).
The paramount example is monetary policy management that has been
entrusted exclusively to central banks, thereby removing it from the sphere
of possible inflationary manipulation by governments.
However, central banks and regulatory agencies were set up by
parliaments, which defined their goals and instruments in the law; and in
the exercise of their powers, they were typically made independent from
the executive but not from parliamentary scrutiny. Their legitimisation is
secured not only by their political and parliamentary mandate, but also by
procedures defining how decisions must be taken for the protection of the
collective and individual interests they are responsible for upholding (Lord
& Magnette, 2004).
A significant aspect of European Union activity does indeed concern
market regulation, with a view to removing barriers to free circulation and
competition. When it comes to implementation, the Commission operates
as an independent agency, sanctioning states and individuals for violations
and obliging them to put an end to prohibited behaviour. Decisions may be
corrected through appeals to the European Court of Justice, but as a rule
not by national or Union political powers. Some have claimed that the
European Central Bank (ECB) enjoys even greater independence than do
national central banks, as neither the Council nor the European Parliament
provides an actual political counterweight. The ECB’s mandate is treatydefined, and therefore can only be modified via a unanimous vote of the
member states, whereas in most countries the central bank’s mandate is
defined by ordinary legislation.
The loss of political control can generate unpopularity –
understandably, insofar as public opinion may not perceive the efficiency
benefits
in
economic
policy
management
linked
to
this
‘constitutionalisation’ (Eichengreen, 2007). Unpopularity may also stem
from the very attitude of national governments, which sometimes have
shown no hesitation in blaming the Union for unpopular policies they had
voluntarily agreed to implement within the Council. Unpopularity can also
feed on the rising intensity of forces for globalisation and technological
change, as these reduce the effectiveness of traditional tools of economic
management and income distribution (Dahrendorf, 2001; Scharpf, 1999 and
Schmitter, 2000).
230 | STEFANO MICOSSI
The most significant contribution in terms of restoring government
and Union popularity would come from better designed economic policies,
able to address the challenges of global markets, which is the topic of the
following section.
3.
Legitimisation through substantive Community action
Public institutions are established to meet needs that cannot be met
through individual action and thereby require forms of collective action. The
quality of collective action plays a significant, and in the long run, crucial
role among legitimisation processes. This applies to the European Union’s
institutions as well: all the more so, as democratic legitimisation through
decision-making processes is weaker there (Schmitter, 2000 and Scharpf,
1999).
Various authors have considered this to be a leading cause of Union
unpopularity: they feel that integration policies reduce the latitude national
policies may have to achieve redistribution goals, thereby contributing to a
‘race to the bottom’ in terms of public welfare and public services (e.g.
Dahrendorf, 2001 and Scharpf, 1999). Mény (2002) underscores the Union’s
role in shifting the balance in economic policies in favour of market forces.
These conclusions call for some qualification. First of all, as pointed
out earlier, the loss of control suffered by national policies has to be
assigned to globalisation more than to specific action on the part of the
Union; the Union, and the member states for that matter, can do nothing
but adapt to processes that elude control by all governments. The criticism
therefore concerns the operational difficulties encountered by democratic
systems in general, and not only by European institutions. Examples
include difficulties in responding adequately to economic insecurity or to
national welfare system strains linked to population aging. Moreover,
during slow-growth years, weak and irresolute national governments did
not hesitate to blame Europe for events that stemmed from their inability to
reach decisions, thereby feeding hostility towards European institutions.
It is also worth noting that many Union initiatives have constrained
state action, but to the benefit of citizens: for instance, by strengthening the
defence of consumer interests through competition policy or transparency
and quality requirements in the provision of public services.
Finally, empirical evidence confirms convergence in the fundamental
philosophy of macroeconomic policies, in the sense that neither monetary
policy nor public deficits are considered very effective tools to bring about
DEMOCRACY IN THE EUROPEAN UNION | 231
lasting improvements in growth and employment. The data, however, do
not confirm the existence of a general constraint on national policies
precluding the pursuit of autonomous goals of equity and solidarity.
Mosley (2004) has shown that pressure exerted by financial markets
on governments with a view to having them reduce deficits is not related to
the adoption of the single currency. In general, empirical evidence confirms
that countries of very different state size and resulting tax burdens can
persist side by side in an environment of integrated capital markets. In
other words, different collective preferences in terms of public intervention
need not be incompatible with integration and globalisation.
Similarly, a whole body of literature has identified sustainable
unemployment benefit schemes as well as inefficient schemes, which are
unsustainable in an open and integrated environment (Sapir, 2006). Insofar
as they encourage risk-taking, efficient systems that insure against the risk
of losing one’s job can increase growth, rather than dampen it (Ferrera &
Sacchi in this volume). Gros & Micossi (2006) have called for common
labour market policies that would facilitate the integration of immigrants
while limiting the impact of wage undercutting for nationals.
As a rule, responsibility for economic and social policies lies with the
member states, and this should be acknowledged publicly. That said, a
sharing out of tasks between the Union and member states that would
assign the former responsibility only for ‘negative integration’ policies – i.e.
establishing a common market and removing barriers to free movement –
would be necessarily unpopular and untenable in the long run. This is why
the identification of appropriate ‘positive integration’ policies, taking on
board public opinion demands – for social cohesion, security, effective
management of migration flows – remains a crucial element of
legitimisation.
3.1
Opening new areas for decision-making in the Union’s policies
The Lisbon Treaty has kept the name of the Treaty on European Union
(TEU), while modifying that of the Treaty establishing the European
Community, which will now be called the Treaty on the Functioning of the
European Union (TFEU). The name change is substantive: many rules
regarding the functioning of what was previously called the second and
third pillar are now included in this second part.
More important, this partition could also foreshadow a distinction
between fundamental and ordinary law, as already exists in many
232 | STEFANO MICOSSI
countries. This interpretation is confirmed by the simplified revision
procedures applicable to the provisions ”relative to the internal policies
and actions of the Union” (cf. Article 48 of the Final Provisions of the Treaty
on European Union). These procedures envisage that the Council shall
decide treaty changes in those areas unanimously, after having consulted
the European Parliament and the Commission. Convening an
intergovernmental conference will no longer be required.
The issue is addressed in a more general context by Tosato in this
volume. Suffice it to say that this change has potentially significant
implications for the Union’s democratic legitimisation: common policies
can now be changed without challenging the institutional framework of the
Union. The policies in question have indeed become just that: common
policies, about which political differences may appear, according to
traditional left/right lines or to new divides specific to the European public
arena. In other words, new spaces have been opened for public debate and
political action at Union level; if they are used, the Union’s democratic
legitimisation may become stronger.
With new tasks to undertake and new public spaces for political
debate at a transnational level – that of democracy “beyond States”, to
quote Lord & Harris (2006) – the politicisation of the Union’s institutions
seems bound to take up greater scope. The process will however need to
take into account the specificities of European construction, where many
authorities have been established to guarantee the impartial
implementation of common rules: in order to survive, there is a need to
preserve the areas of impartiality, free of partisan political influences.
4.
Conclusions
The European Union is not a state, so comparisons with state-type models
of democratic legitimisation may well prove misleading. Nor is the
discussion about intervening ex novo to introduce democratic accountability
within an organisation which did not previously know it. The first direct
election to the European Parliament took place close to 30 years ago; since
then, the Union’s institutional system has continued to evolve, establishing
in the process significant areas for democratic participation and control.
Once the Union is recognised for what it is – an innovative polity,
where power is shared by a large number of players, with many
mechanisms for participation and wielding influence, constantly adapting
its institutions to the requirements of its component parts – it becomes
DEMOCRACY IN THE EUROPEAN UNION | 233
apparent that on the whole it complies with democratic legitimisation
standards no worse than do member states (Mény, 2002), even if multiple,
and potentially conflicting legitimisation channels and principles may
confuse observers.
In the end, the Union will be strong in the eyes of public opinion and
member states alike if it manages to come up with solutions to the
challenges of globalisation, external and internal security, energy and the
environment. In this respect, there is no reason why the difficulties
encountered over the last decade should last, to the extent that they were a
systemic consequence of poor Union functioning. On the contrary, we are
perhaps reaching the end of a long and painful adjustment process to an
exceptional series of real and financial shocks, generated by the fall of the
Berlin Wall. Time will no doubt tell.
For the time being, what saliently needs to be kept in mind is that the
member states and EU citizens, however mangled by crises and difficulties,
continue to turn to the Union when seeking solutions to problems that
cannot be solved nationally, and that there is an extraordinary proliferation
of subjects and channels providing participation in European debates and
decisions, in new and ever-changing ways.
Of course, this continuous adaptation process has not been without
consequences for institutional balance. The founding fathers’ initial idea of
a supranational polity has been scaled down to accommodate a more
realistic view of power attribution and sharing. With the extension of the
Union’s scope, and its increasing politicisation, the weight of the Council
and the Parliament in decision-making has increased; the Commission has
strengthened its technical prerogatives in matters of treaty implementation
and enforcement, while its right of initiative has been curtailed.
Through this continuous adjustment process, the Union has
continued to design new legitimisation solutions for multi-level and
transnational political structures, which may well represent the future of
democracy in a world of increasingly integrated manifold communities.
References
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Union, A Federal Trust Report, Federal Trust for Education &
Research, London, January.
234 | STEFANO MICOSSI
Cassese, S. (2002), “Is there really a democratic deficit?”, in Institutional
Reforms in the European Union – Memorandum for the Convention,
Europeos, Rome.
Chryssochoou, D.N. (2003), “EU Democracy and the Democratic Deficit”,
in M. Cini (ed.), European Union Politics, Oxford: Oxford University
Press, chapter 23, pp. 366-381.
Dahrendorf, R. (2001), Dopo la Democrazia, Interview edited by A. Polito,
Roma-Bari, Laterza.
Eichengreen, B. (2007), The Breakup of the Euro Area, NBER Working Paper
No. 13393, National Bureau of Economic Research, Cambridge, MA,
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European Convention (2002), Final Report, European Convention Working
Party IX on Simplification, CONV 424/02, 29 November 2002.
Franklin, M. (2001), “How Structural Factors Cause Turnout Variation at
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pp. 309-329.
Gros, D. and S. Micossi (2006), Crisis in the European Union: A Fresh Start,
CEPS Policy Brief No. 117, CEPS, Brussels.
Hicks, S. (1999), The Political System of the European Union, London:
Macmillan.
Hix, S., A.G. Noury and G. Roland (2007), Democratic Politics in the European
Parliament, Cambridge: Cambridge University Press.
Lord, C. (2004), A Democratic Audit of the European Union, Basingstoke:
Palgrave Macmillan.
Lord, C. and E. Harris (2006), Democracy in the New Europe, Basingstoke:
Palgrave Macmillan.
Lord, C. and P. Magnette (2004), “E Pluribus Unum? Creative
Disagreement about Legitimacy in the EU”, Journal of Common Market
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Majone, G. (1996), Regulating Europe, London: Routledge.
Majone, G. (2005), Dilemmas of European Integration – The Ambiguities and
Pitfalls of Integration by Stealth, Oxford: Oxford University Press.
Maurer, A., J. Mittag and W. Wessels (2000), “Theoretical Perspectives on
Administrative Interaction in the European Union”, in T.
Christiansen and E. Kirchner (eds), Committee Governance in the
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Mény, I. (2002), “De la Démocratie en Europe: Old Concepts and New
Challenges”, Journal of Common Market Studies, Vol. 41, No. 1, pp. 113.
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European Constitutional Project? A Symposium”, Politische
Vierteljahresschrift, Vol. 47, No. 2, pp. 219-241.
Mosley, L. (2004), “Government-Financial Market Relations after EMU.
New Currencies, New Constraints?”, European Union Politics, Vol. 5,
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Sapir, A. (2006), “Globalisation and the Reform of European Social
Models”, Journal of Common Market Studies, June, pp. 369-389.
Sapir, A., P. Aghion, G. Bertola, M. Hellwig, J. Pisani-Fery, D. Rosati, J.
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13. TRAIL-BLAZING DEVELOPMENTS IN
JUSTICE AND HOME AFFAIRS
GIACINTO DELLA CANANEA*
E
ver since the collapse of the Soviet system, capitalist market
economies have prevailed worldwide, based on economic
institutions such as prices, markets and businesses. However, market
economies require a number of corresponding legal tools, such as property,
contracts and judicial protection of rights. They also require ‘public goods’,
such as security and public order, defence and civil protection, which
public institutions are expected to deliver.1 The importance of such goods
has become even more evident during the last 10 years, due to the growing
awareness that individuals and groups may jeopardise the ability of states
to produce and provide those ‘goods’ that are essential to an ordered
society. In order to preserve this ultimate value – a legally unchallengeable
goal,2 regardless of the modalities of its achievement – a dual line of
analysis must be developed, by identifying the terms of the problem and
specifying the constructs required to work out a solution. The first of these
lines is not addressed fully in this paper. Rather, the paper focuses on the
achievements at the level of the European Union and on their future
* The author expresses his thanks to Sabino Cassese, Stefano Micossi and Gian
Luigi Tosato for their comments on an earlier version of this chapter.
1 The term ‘public institutions’ is used here in the broad sense, including both
supranational agencies and sub-state-level authorities, such as territorial bodies
(regions) as well as legal entities that are formally private but that exercise public
functions.
According to Ziller (2007, p. 55), “research to date shows that citizens of all
Member States expect the Union to provide protection in those fields that are of
direct relevance to their everyday lives”, as is the case with justice and home
affairs.
2
236 |
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 237
prospects. It briefly describes less recent developments, in order to
concentrate on the more recent.
1.
The problem: Losing control over territory and individuals
The starting point is that the authority once exercised by the institutions
that are used by states to exercise authority over territory and people has
been undermined and eroded, even where state organisation is efficient.
There is not a single cause for this, but, rather a plurality of causes, which
often interact with one another.3
Territorially defined jurisdiction. Criminal organisations increasingly
operate transnationally. Criminals, goods (drugs, weapons, hazardous
waste) and the proceeds of illegal activities move around the world
unhindered, including among European countries whose borders are
‘porous’. A further impact derives from the gradual increase – brought
about by conflict and famine – in the number of immigrants who attempt to
‘illegally’ enter EU member states. Public institutions thus find it
increasingly difficult to prohibit specific deeds or activities, even when they
resort, under extreme circumstances, to the use of force.4 Meanwhile,
various groups (separatists, terrorists, religious fanatics) are mounting
deliberate attacks on collective security. Thanks to modern technology, the
availability of funding and easy access to military weapons, these groups
are now in a position to inflict unprecedented damage on property, persons
and law-abiding society. They are challenging the ability of specialised
agencies to exercise functions of intelligence-gathering and policing, as
territorial separation constrains what these agencies may do.
Failures in information-gathering. The responsiveness of state
bureaucracy is not only constrained by national borders. The information
available to such bodies is also limited and its processing is costly. It is
therefore partial, at times distorted and often obsolete. When
administrations in charge of intelligence-gathering or policing are poorly,
The issues covered here have been the focus of much work. For a global view, see
Peers (2008).
3
In the sense that the hallmark of the state – according to Max Weber’s well-known
analysis – is its monopoly over the legitimate use of force, as opposed to the use of
force per se (see Giannini, 1990, p. 224).
4
238 | GIACINTO DELLA CANANEA
insufficiently or belatedly informed, decision-making is inevitably affected
by these shortcomings. Expected outcomes cannot be delivered.
Discrepancies in focus and organisation. In addition to often not being in
a position to fully exercise control over their territory and not having access
to adequate information, state bureaucracies follow different approaches.
Such differences to a large extent reflect political ideas, but depend also on
national administrative styles. Consider, for example, the plurality of police
force structures, as one finds in Italy.5 Such asymmetries risk further
eroding the ability of states to achieve territorial control. For example, if
Spanish police forces go so far as to use extreme force in refusing entry to
illegal migrants, while Italy and Greece let them in, this may be viewed as
an incentive by migrants.
Insufficient cooperation. Although the need for more stable and prompt
cooperation is now broadly acknowledged, many obstacles remain.
Language is one, especially if vehicular languages, such as English, are not
yet diffuse even between senior officers. Technology is another obstacle.
Not only assuming information is not an easy task, but it may prove
difficult to interpret it properly, especially if different technologies are in
use. Last but not least, all state bodies are generally reluctant to accept
external constraints, to coordinate the work they do in various areas with
that of similar bodies in other countries, to take joint decisions. This is
hardly surprising, however, when considering that only at the end of the
first quarter of the 20th century did the United States set up a Federal
Bureau to fight against crime.
These inadequacies lead to inefficiencies in the use of the inevitably
scarce resources that states can muster in order to ensure the rule of law
and protect the interests of the community they represent. Not only does
this prevent the development of joint strategies, but it can even lead to the
misuse of state powers. Moreover, often it is hard for them to reconcile
security with safeguarding liberties and rights.
2.
The European rescue of police powers?
In order to reduce the asymmetry vis-à-vis individuals and groups, the
states cooperate in many forms. Governments and administrations
5
For more on these discrepancies, see Cassese (1997).
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 239
increasingly engage in the exchange of information and assistance beyond
what is required by their respective legislation, for example in the fight
against terrorism. Sometimes, even the courts affirm their jurisdiction over
events that have occurred elsewhere. The rulings of the British House of
Lords, in a matter initiated by a Spanish magistrate regarding former
Chilean dictator Augusto Pinochet, are only the best-known illustration of
this development.6 As far as the European arena is concerned, cooperation
with regard to public order has taken on a variety of different forms that
ultimately can be traced back to three paradigms. These paradigms are not
logically linked to one another, nor are they sequentially connected, in the
sense that one follows or is replaced by another. Rather, they have coexisted and to a considerable extent still do. The three are straight vanilla
intergovernmental or ‘voluntary’ cooperation with or without multilateral
agreements, cooperation among all EU member states and enhanced
cooperation among some of the latter.
Up until the mid-1980s, intergovernmental cooperation took place
entirely outside Community provisions. It covered a variety of different
subjects: initially immigration and asylum rights, then terrorism and the
fight against transnational crime. Cooperation implied adopting legally
binding agreements or significant – albeit non-binding – texts such as
conventions and recommendations. It also meant developing information
exchange, and setting up structured counterpart panels of national experts.
Other changes occurred during the years 1985-86. First, the European
Single Act strengthened the constitutional status of individuals’ freedom of
movement whilst codifying the widening of the competences of the
European Community. Second, the Schengen Agreement was enacted by a
few countries (five of the six founding countries, with the initial exception
of Italy). It aimed at eliminating internal border controls and strengthening
controls at the external border level. The agreement was subsequently
extended to other countries several years later, when they adapted their
administrative systems. Eventually, the Community itself extended the
scope of its own jurisdiction with a view to include this agreement within
its institutional framework.
6 See Volcansek & Stack (2005) and Bianchi & Naqvi (2004). See also Slaughter
(2005) for the thesis that the global interaction between judges and administrators
generated a new world order.
240 | GIACINTO DELLA CANANEA
Ever since 1992, EU member states have been actively involved in the
establishment of the Freedom, Security and Justice Area provided for by
Article 2 of the Maastricht Treaty (TEU). As a result, the treaty covers a
broad range of fields, including asylum and immigration policies,
combating drug addiction and customs and police cooperation,7 which
regard the compétences régaliennes, a domain that states jealously retain. This
explains the specificities of the action of the Union. First, its functions are
carried out in a partially distinct legal and political environment, as it
emerges by the ‘third pillar’ metaphor (the second being that of foreign and
security policy). Second, decision-making procedures are based on
unanimity, instead of majority-voting. Third, and also its final outcome,
namely the acts differ from those of the EC, including common positions,
conventions and other documents. Fourth, it was found that genuinely
supranational institutions, such as the European Commission and the
European Court of Justice, enjoy only a marginal role.8
3.
An area of freedom, security and justice
At the end of the 20th century, a further constitutional change was
introduced through the Amsterdam Treaty (1999). Various fields or subfields were shifted from the third to the first pillar: policing of external
borders, asylum and immigration and judicial cooperation in civil cases,
which is the focus of a recently adopted convention involving third-party
countries such as Switzerland. For other fields, the role of the Community
has been specified (Article 29 of the TEU).9 The salient change is that public
functions in the field of justice and home affairs are legally and not only
politically determined by the goals and rules established by the European
Union.10 This does not mean, however, that the states concerned have
renounced pursuing their own active policies in these fields. Rather, it
implies that national authorities have to abide by common rules and
decisions. Closer cooperation is thus made possible not only by the sounder
7
See Monar (2003, p. 497) and also Delmas-Marty (1996).
8
See Tosato (2000, p. 331).
9
See Adam (1999, p. 225) and Alvarez (2005, p. 27).
Drawing a line between the ‘territory’ concept (once considered an essential tenet
of the state, on par with the ‘people’ and ‘sovereignty’) and that of ‘area’ is
essential. For a political scientist’s view, see Monar (2003, p. 497).
10
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 241
legal basis provided by the treaty, but also by the definition of new
categories of legally binding acts. For example, framework decisions are
binding as to their goal, as are directives, but with no direct effectiveness.
These new instruments, together with ‘Decisions’, supplement common
positions and conventions, the adoption of which is recommended to
member states. The latter may enter into force in the adopting member
states, unless otherwise specified, once at least half of all member states
have indeed adopted them. No attempt has been made even partially to
unify national legal systems: constitutional traditions proved far too
different for that to be contemplated (the centrality of trial by jury in
common law countries is but one of the most evident examples). If
anything, this may emphasise the need for some measure of convergence
among national parliaments, through the removal of structural obstacles.
Further progress has been made in recent years.11 As regards
organisational issues, several steps have been taken to strengthen the action
of Europol, an agency set up in 1995 with a view to coordinating the
operations of national administrations. The head of Europol is now
authorised to enter into external agreements. A European judicial network
has been put into place12 – and acknowledged by the 2001 Nice Treaty –
which has Eurojust at its centre. New networks have thus been added to
pre-existing Community and national structures. At the same time, the
principle of information availability has been stressed. This means that the
information available to specific bodies in a given state must be provided to
counterpart bodies in other states. A further requirement has been added:
to the extent possible, information thus exchanged must be sent using
modern technology. Even more important from a legal standpoint has been
the replacement of traditional extradition procedures with the European
This has been acknowledged, albeit critically, in a European Parliament
Resolution on “Progress made by the EU in creating an area of freedom, security
and justice”, adopted 30 November 2006.
11
Joint action No. 98/241/GAI. The Justice Ministries are clearly involved in a
number of different cooperative projects, as evidenced by the fact that they
participate in meetings of the following groups and committees: a) committee on
Article 36, b) multidisciplinary group (justice and home affairs) on organised
crime, c) horizontal group on narcotics, d) group on cooperation in criminal law
proceedings and e) European judicial network group.
12
242 | GIACINTO DELLA CANANEA
Arrest Warrant (EAW).13 This is a streamlined procedure that the judiciary
may use to obtain the handing over of convicts or suspects. For a number of
explicitly listed crimes, this handing over is possible regardless of dual
criminality considerations, provided that the maximum sentence to be
incurred is at least three years. Thus, not only has cooperation between the
states extended to the power to punish, but their legal systems now
increasingly practice mutual recognition (as reiterated in TEC Articles 61
and 61 C, as modified by Treaty of Lisbon (hereafter, ToL) Article 64).
This approach, initially used to build the single market, presupposes
and strengthens principles that are part of a shared constitutional heritage.
At the very core of this heritage lies the principle of the legality of crimes
and punishment. Interpreted in the light of mutual recognition, it allows
for exceptions to the dual criminality rule. The basic assumption is that the
high degree of confidence established among public institutions is such that
the criminal law of any given country is deemed to constitute a valid legal
basis for the exercise of legal proceedings in another. A second shared
principle is that of equality and non-discrimination. This is safeguarded by
the list of crimes published in the Framework Decision, which ensures legal
certainty, at least to a certain extent. It does not, however, rule out there
being different implementations in different countries. On the other hand,
the Framework Decision admittedly does not aim to harmonise substantive
criminal law in member states.14 A third principle, which is usually referred
to as ne bis in idem, prevents the possibility of sentencing someone twice for
the same crime. According to the European Court of Justice, the rationale
for this stems from the need to avoid having the same individuals taken to
court for the same sets of facts in more than one member state, as this
would impose an excessive limitation on their freedom of movement. Thus
Framework Decision No. 20027584/GAI, of 13 June 2002. The uniform
implementation of the framework decision was called into question following a
ruling handed down by the German Constitutional Court in the Darkanzali case,
which partially voided the national implementing regulation, stating that it
conflicted with constitutional principles of the rule of law. Cases concerning
Belgian and Polish constitutional courts are reviewed in Siegel (2008).
13
European Court of Justice, 3 May 2007 ruling, Case C-303/05, Advocaten voor de
Wereld VZW v. Leden van de Ministerraad. The convergence of criminal legislation is
granted if necessary under new TEC Article 61, while recourse to legislative
procedures can only lead to minimum rules (Article 69 A).
14
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 243
defined, the principle applies not only to cases where individuals have
been deemed not guilty as to substance, but also when the non-guilty
ruling has been handed down for reasons relating to statutes of
limitations.15
4.
From the Laeken Declaration to the Lisbon Treaty
A further development in the definition of the Union’s new constitutional
framework was initiated in December 2002, at the European Council
meeting in Laeken. On this occasion, member states expressed their
intention to further strengthen their cooperation, including through the
adoption of new institutional provisions. A revision process of both the
Treaty of Rome and the Treaty setting up the European Union thus begun
and gave rise to the “Treaty establishing a Constitution for Europe”, which
clarified the functions of the EU, identified new instruments and corrected
a number of rules relative to decision-making.16 However, the Treaty was
rejected by some countries (France and the Netherlands, following the
failure of referendums) and eventually did not enter into force.
Following further negotiations, some of the more significant
innovations agreed in 2003 were included in the Treaty entered into in
Lisbon on 13 December 2007, which modified the constitutional rules of the
European Union as well as those relative to its functioning. Provisions
regulating Union jurisdiction in the fields under review have not been
changed. The legal principles and goals to be pursued by public institutions
have however been restated, and new principles introduced. All this will be
considered from two points of view, which aim at identifying the more
relevant changes introduced and shedding some light on the substantive
logic that underpins them, respectively.
The first change concerns the Union’s goals. The new treaty specifies
that within the area of freedom, security and justice, the freedom of
movement of persons shall be safeguarded, and the adoption of
appropriate measures to ensure external border control, asylum,
immigration, as well as the prevention and combating of crime (TEU
European Court of Justice, 28 September 2006 ruling, Case C-467/04, G.F.
Gasparini.
15
16
See Ziller (2004).
244 | GIACINTO DELLA CANANEA
Article 2, as modified by ToL Article 4), guaranteed. Responsibilities taken
on vis-à-vis citizens and third-party nationals are significant: the Union is
“to ensure a high level of security” (TEC Article 61, as modified by ToL
Article 64).
The second change derives from the relinquishing of the three-pillar
approach to the European Union’s powers. This is further demonstrated by
the fact that legal safeguards are to be provided for in the framework of
administrative measures taken to prevent or combat terrorism, while
directives are contemplated to facilitate cooperation between police and
judicial authorities, in addition to the mutual recognition of judicial
decisions (TEC Arts. 61 H and 69 A, as modified by ToL Article 64).
These developments do not imply that the specific features
mentioned earlier with regard to decision-making procedures do not exist
anymore. A number of changes to those rules have nevertheless been
defined. Some are of a very general nature, and focus on the establishment
of enhanced cooperation (§8). Others are more specific, and can be quite
relevant: in order to protect the financial interests of the Union, including
against crime, the Council may adopt regulations on a unanimous basis. In
the absence of unanimity, however, a group of at least nine member states
may request that the matter be referred to the European Council. If no
consensus emerges within four months, and should the nine member states
wish to proceed with enhanced cooperation, they shall notify Union
institutions accordingly and “in such a case, the authorisation to proceed
with enhanced cooperation (…) shall be deemed to be granted” (TEC
Article 69E).
The essence of this new legal framework is characterised by two
features. First, the task to strike an appropriate balance between authority
and liberties is no longer the exclusive responsibility of the member states.
It is shared with the EU. Second, however, the new legal framework allows
national public institutions (governments, administrations, judiciary) to
operate in a context that is clearly more favourable than that which prevails
outside the EU. Such a legal framework does not preempt state jurisdiction,
nor does it erode their legal – or political – responsibilities. In particular,
coercive powers remain the province of national authorities even though
the legal framework that determines the legitimacy of their use increasingly
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 245
bears the mark of the European Union’s rules and operations.17 In other
words, this new development has further stressed the fact that the Union
has taken an increasingly administrative turn, and that progress has been
far less marked in terms of political consolidation. Time will tell whether
one dimension can develop independently of the other and if so, to what
extent.
5.
Issues of efficiency and safeguards
After this cursory review of the new legal framework, two different sets of
questions may be considered. The first is whether interactions between new
and old holders of authority, i.e. the European Union and its member
states, are likely to offset the asymmetry that leaves private players in a
disadvantageous situation, in particular transnational organised crime.
Clearly, the ability to exercise control over private players cannot be
assessed solely as a zero-sum game between public institutions. It may be
more than that, or less. The issue, however, is whether cooperation within
the EU limits the undermining of state bodies’ powers. This issue must be
reviewed separately from another, which is more frequently addressed in
government studies. Improving the ability of government officials and
government bodies and departments to reach and implement decisions
beyond national borders may lead to a gradual qualitative and quantitative
drop in the safeguards provided by public legislation.18 There are different
views as to the scope for strengthening such safeguards within states, as
opposed to rebuilding them within European law. However, one point
should be absolutely clear: not only are safeguards needed as regards the
exercise of such powers, but also adequate forms of accountability,
according to the principles of constitutional government.
On the first of these levels of analysis, that of public decision-making
and implementation effectiveness, there are several obstacles. The very fact
that decisions have to be reached with several member state governments
implicitly entails a number of heavy burdens, which add on to the specific
constraints and limitations that justice and home affairs departments have
to contend with, and that have no EU equivalent. The Commission’s ability
For a convincing theoretical overview of these issues, see Diez-Picazo (2005, p.
133).
17
18
See Weiler (1999).
246 | GIACINTO DELLA CANANEA
to take initiative, to set the agenda of the EU or to mediate between specific
interest groups and governments is far less developed than that of states.
As regards international agreements, for instance, it can at best support the
Presidency in the launching of negotiations.
Furthermore, the fact that the Community has not one, but a number
of different decision modes (different types of majority, unanimity,
consensus) ensures the prevalence of dialectics, and can be construed as
positing efficiency in their use. Justice and home affairs decisions, however,
remain bound by rules of unanimity. This is not necessarily a bad thing.
Unanimity requirements may ward off overly hasty decisions that do not
properly take into account specific interests and circumstances. This may
lead to trade-offs and the emergence of comprehensive agreements among
national governments, provided that the Commission acts as an efficient
and impartial mediator. But unanimity may also jeopardise the adoption of
indispensable decisions or at the very least, postpone them. A way out
exist, anyway, with so-called ‘bridge’ provisions allowing for unanimitybased votes to rule on shifts to majority voting. This has however remained
largely theoretical. As a result, many of the proposals put forth have
proved difficult to translate into actual concrete decisions and action.19
If the Union’s decision-making ability is thus constrained, that of
individual member states appears even further weakened.20 The accession
of 14 new member states between 2005 and 2007 has extended freedom of
movement to their citizens and eliminated internal borders. As always, this
generates both opportunities and risks. The opportunities resulting from
this extended freedom of movement can hardly be assessed. Nor is it
possible to rule out the possibility that risks may yet materialise, in
particular in the form of increased security gaps. Governments and
parliaments may thus be tempted to move away from the high ground of
cooperation or, at the very least, to add new conditions and limitations to
On this point, criticism voiced in the European Parliament Resolution on
“progress made by the EU in creating an area of freedom, security and justice”
mentioned above, i.e. multiple legal bases, delays in the activation of ‘bridges’, lack
of genuine democratic controls, has certainly retained its topicality – if one
disregards some of the democratic deficit rhetoric.
19
The nature of this paper does not allow me to address the distinctive features of
negative and positive integration. See Stone Sweet (1998, p. 9).
20
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 247
existing cooperation schemes. Clearly, conditions and limitations may be
imposed by national courts on EU legislation, as happened in the UK
legislation with respect to the European Arrest Warrant. But this may also
elicit further reaction from national politicians faced with what they feel is
undue interference on the part of non-elected magistrates and the
European law they uphold.
In the meantime, obstacles continue to preclude the full realisation of
those ‘values’ on which the European Union is based. At the heart of such
values lie the preservation of democracy and the rule of law, the protection
of rights and fundamental freedoms (TEU Article 6). They have a two-fold
meaning. Insofar as they are absolute prerequisites for Union accession,
states that do not meet either of these criteria will not become members.
Moreover, Community institutions are designed to promote and pursue
these values through their work.21 And yet, from the point of view of
effectiveness, the relevant Treaty provisions contain a number of enduring
inadequacies.
The most salient inadequacy regards mechanisms designed to ensure
that policy-makers are accountable. National parliaments have very
different levels of effectiveness in terms of the checks and balances they
enforce vis-à-vis their individual governments. Moreover, they are illsuited structurally to engage in checks or the supervision of decisions
reached at the European level. This applies particularly to decisions taken
by majority vote. As regards the European Parliament, it may well have
general consultative jurisdiction, but this does not adequately offset the
Council’s right to reach binding decisions.22
More significant progress has been achieved with regard to judicial
safeguards. The Court of Justice not only has jurisdiction over compliance
with Community powers;23 under TEU Article 35, the Court has ‘consistent’
See von Bogdandy (2006). On issues of immigation and asylum, see an
interesting clarification in Guild & Harlow (2001).
21
See Satta (2003, p. 254). For a general assessment of the various forms of
accountability, see Peers (2005, p. 253).
22
Moreover, the Court has asserted jurisdiction in matters pertaining to
infringement of Community powers in its 12 May 1998 ruling, Case C-170/96,
Commission v. Council. It has furthermore ruled that framework decisions are
binding in its 16 June 2005 ruling, Case C-105/03, Pupino. For a critique of the
23
248 | GIACINTO DELLA CANANEA
powers, which include preliminary rulings regarding the validity and
interpretation of framework decisions, decisions and relevant measures of
implementation. The exercise of such power is optional, however, and
subordinate to specific requests expressed by one or several member states.
Accordingly, a potential wedge has been introduced among legal
safeguards. The fact that most member states have so far agreed no doubt
attenuates the problem, but the issue still remains. In addition, the
jurisdiction of the Court does not include any review of the validity and
proportionality of the measures taken for purposes of law enforcement and
domestic security. An equally serious flaw concerns individuals’ and
groups’ legal standing. In the framework of the EC, though these players
have a less favourable position than Community institutions or member
states, they have the right to challenge both decisions that are of direct
relevance to themselves and regulations that contain concealed decisions.
By contrast, in the field of justice and home affairs, a similar right does not
exist.24 For those who hold that legal remedies are by far more significant
than solemn declarations of rights, since the former ensure the effectiveness
of the latter, this shortcoming is more serious than the Charter of
Fundamental Rights’ lack of binding legal effects, let alone the fact that
access to justice is included by the ECJ within the general principles of
Community law that it draws from member states’ shared constitutional
traditions, as well as from the European Convention on Human Rights. The
question thus arises whether EU courts are ready to show that they are
aware of the need to uphold such principles even when law enforcement
and collective security interests are at stake. While the first decisions taken
by the lower court with regard to anti-terrorism measures raised serious
concern, the ECJ has argued that the noyeau dur of fundamental rights must
be protected even in such cases.25
allegedly inadequate innovations introduced by the Treaty of Amsterdam (“a
missed opportunity”), see Guild & Peers (2001, p. 284).
Court of First Instance, Case T-228/02, Organisation des Modjahedins du peuple de
l’Iran v. Council.
24
See CFI, Case T-315/01, Kadi v. Council of Ministers and Commission and ECJ,
Joined Cases C-402/05 P and C-415/05, with comment by della Cananea (2009, p.
511).
25
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 249
6.
Future Prospects: ‘Choral’ cooperation and trail-blazing
initiative
The observations made thus far imply that inadequacies remain not only
regarding specific checks and balances, but also with regard to the general
structure of the system as well. Such inadequacies concern the ability to
choose, decide and act, as well as the corresponding safeguards. Defining
the way forward on the basis of this analysis, however, is not obvious.
There may be some consensus among institutional and academic circles
regarding the very existence of such inadequacies, but the way in which
they might possibly be remedied elicits dissent. At the cost of somewhat
oversimplifying the issue, two opposite positions may be identified.
The first of these positions coincides with the ‘official’ stance taken by
the Union, as evidenced in particular by political documents produced by
the Commission and the Parliament. Moving towards a more united
Europe is a wish solemnly underscored by all national policy-makers, even
regarding the two major areas where intergovernmental cooperation has
prevailed over the so-called ‘Community method’. In fact, member states
often do not follow traditional avenues. They have often opted for specific
solutions, but this has not appeared to alter the basic political choice (and
the underlying mutual trust) of European leaders to proceed together
towards a closer Union. Removing obstacles to trade and competition
seems to have yielded, over the 50 years spanning the shift from ‘common’
to ‘single’ market, considerable benefits in terms of efficient resource
allocation. Centralised currency management has further contributed to
guaranteeing stability and protecting European economies from the
turmoil of this last decade, despite the severity of the last financial crisis.
According to this line of reasoning, choosing to move together towards
ever-closer ties is by far the best way forward. Otherwise, further benefits
of cooperation among member states may be at risk. Even current benefits
could be jeopardised, should institutional issues become increasingly
complex, unity increasingly frail and the public’s understanding of these
issues ever dimmer.
The opposite position underscores the advantages of differentiation –
strengthened cooperation and avant-garde initiative.26 The basic assumption
For an analysis of enhanced cooperation, see Ehlermann (1997, pp. 51-90). An
updated analysis of the logic of differentiated integration is to be found in Klliker
26
250 | GIACINTO DELLA CANANEA
is that the institutional structure of the European Union may be singularly
complex, and its processes at times lacking in transparency. However,
nation states, simpler in their uniformity and centralisation, are not an
adequate source of benchmarks. Empirical analysis provides some
evidence. Consider Economic and Monetary Union. Economic theory does
not single out unassailable potential pros and cons. Implications for
national interests are perceived in different ways not only by national
governments, but by public opinion as well. Choosing to differentiate
accession paces and modalities has thus helped some countries improve
their position, while others were granted the right to wait for better
conditions or circumstances. Further proof of the value of this method is
provided by the Schengen Treaty. Initially entered into by five member
states, and thus positioned outside the purview of the European
Community, the Treaty was later signed on to by other countries. It does
not rule out exemptions, in special circumstances. Yet further proof is
provided – should any be required – by the Prüm Treaty. Entered into on
27 May 2005 by five of the six founding member states, Austria and Spain,
the instrument remains open to general accession. It aims at enhancing
trans-border cooperation, to fight against terrorism, organised crime and
illegal immigration. It permits a level of cooperation unthinkable until few
years ago, including organising and exchanging information on DNA,
fingerprints, introducing air-marshals and repatriating illegal immigrants.
Cooperation between and among trail-blazing countries thus allows public
authorities to take steps that are more effective. They can use confidential
information, gradually made available to all those concerned, on the basis
of bilateral relationships.27
Such positions should not, however, be regarded as conflicting, but as
complementary. The complementarity stems, first, from the fact that the
political and institutional paradigm of Europe cannot be the same as had
been designed initially, under very different circumstances. So many
sudden and unexpected events occurred: the collapse of the Communist
(2005). New rules applicable to enhanced or strengthened cooperation can now be
found in TEC Section III, as modified by ToL Articles 277 and 278.
See Brady (2005). There are further references to conventions entered into by
member states in the field of judicial cooperation and law enforcement in Amato
(2007, p. 229).
27
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 251
bloc, growing domestic opposition in Islamic countries, the proliferation of
international terrorism. The initial framework must in addition be adapted
to the changing nature of a polity that was adequate for the six founding
countries, but already proved inadequate in 1995. It is still more inadequate
after the last enlargement, including countries that are both different from
one another and especially with regard to the founding member states.
Believing that all Western European countries would immediately agree to
French Foreign Minister Robert Schuman’s project28 was not a realistic
proposal in 1952. Expecting all 27 member states to always agree on
essential policy choices is not realistic today. Conversely, should a limited
number of countries engage in various forms of innovation, they may hit
upon different solutions and develop closer, albeit non-exclusive ties. There
appear to be no legal or political obstacles thereto, insofar as basic
government principles (such as the separation of powers or unitary
administrative organisation) devised for states at the acme of their
development do not apply to the European Union. Lawyers and political
scientist are aware that the Schengen Treaty experience shows that states
may embark on the high road of integration together, and yet do so at
different paces and according to different modalities.29 This line of
reasoning can be taken one step further still, so as to assert that a number of
valid reasons, both ideal and pragmatic, today call for a parallel deepening
of Community method-based integration and consistent trail-blazing
developments in justice and home affairs cooperation. Though one should
not rule out, for that matter, the activation of decision-making processes
deriving from the Community’s traditional method.
7.
Implications for checks and balances
The above-mentioned way forward – a combination of united progress and
initiative by an avant-garde – has several implications, some of which
28
See Monnet (1976).
Denmark, the United Kingdom and Ireland do not fully take part in a set of
decisions concerning justice and home affairs, or they take part under specific
circumstances. Thus the United Kingdom and Ireland are not party to Schengen
provisions relative to the freedom of movement of persons, external border
controls and visa policy. At the Council level therefore, representatives of these
countries do not vote.
29
252 | GIACINTO DELLA CANANEA
require proper clarification. These relate both to safeguards, and to that
other area of intergovernmental cooperation, i.e. the EU’s Common Foreign
and Security Policy.
What is required is both discretion and flexibility. Discretionary
powers are necessary to assess the solutions best suited to preserve
collective interests in the fields of enforcement and security. Flexibility is
necessary in the selection of legal instruments and effects. Historically and
logically, discretion and flexibility first appeared in the framework of
states’ public order functions for at least two reasons. The first of these is
functional by nature. Preventing and punishing forms of behaviour that are
a threat to collective interests assumes the ability to adapt and respond to
trends and events that are only partly foreseeable and unlikely to fit into
preordained models. The second reason is perhaps more important, from
the point of view of the institutional framework. It has to do with
jurisdiction and authority among the higher echelons of executive power,
the exercise of which has to be contained by a number of specific doctrines,
limits and controls.
The need for these checks and balances is particularly keen regarding
interstate activities. The establishment of organisational and procedural
agreements to acquire, process and share confidential information,
regarding the more sensitive data available, can prove risky both to those
receiving this information and to national governments, for reasons of
comprehensive transparency. Developing special relationships among and
between public administrations, beyond the scope of regular diplomacy,
will strengthen government over parliament. New legal instruments such
as the European Arrest Warrant undermine the traditional safeguards
provided by ad hoc procedures devised to check that requirements for
extradition are indeed met.
The range of institutional safeguards must therefore be extended in
different ways. Should the British approach based on administrative and
judiciary remedies (ombudsmen, tribunals and boards) prove overly
informal – and the French, grounded in the assertion of Treaty-enshrined
rights, overly formal – a median solution could usefully be sought out in
two ways: through explicit reference to the European Convention of
Human Rights, which is what Article 6 of the Treaty of Lisbon does. A
further positive innovation would be a clear mandate to the Court of Justice
to assess on a case-by-case basis the balance of interests thus achieved
under the ‘margin of appreciation’ doctrine developed by the European
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 253
Court of Human Rights. This would both allow for rigor in terms of general
principles, because of the reference to the norms of the ECHR, and provide
flexibility. Additional and supplementary steps would then to be adopted,
in particular regarding compensation to be provided to individuals and
associations, not to mention the possibility of voiding legal instruments
that have entailed said compensation claims.30
Although this would increase the level of safeguards provided to
individuals and groups, one must not forget the more general requirement
of reconciling flexibility and discretion on the one hand, and transparency
on the other. Transparency or rather disclosure per se is positive and
therefore cannot be renounced. It is the distinguishing feature of
democratic, as opposed to authoritarian regimes.31 It supports and lends
legitimacy to flexibility and discretion. For functional reasons, it is not
possible to exclude that public policy implementation, especially regarding
home affairs, may have its times of opaqueness. However, should this
prove persistent and prevalent, in the long run, public policy
implementation would lose its very rationale. Clearly, disclosure is not
tantamount to adherence to strict, predetermined rules. But it must at the
very least mean that policy guidelines and concrete measures are subject to
ex post checks, on the basis of unambiguous criteria. This is the prerequisite
of accountability.
8.
Implications for the Union’s Foreign Policy
Strengthening cooperation in the fields of justice and home affairs, even
through avant-garde initiatives, also has implications for the Union’s
Common Foreign and Security Policy.
The global dimension of issues arising in the field of enforcement and
security requires that parallel strengthening be undertaken in the external
dimension of the European Union. This can be achieved through both
informal and formal agreements through special agreements with thirdparty countries, as with the United States in the weeks that followed the 11
September 2001 attacks on New York and Washington. Much has already
been achieved, but much remains to be done in this field, including with
30
On this, see Ackerman (2006, p. 51).
31
See Bobbio (1986, p. 175). See also Curtin (2001, p. 35).
254 | GIACINTO DELLA CANANEA
other NATO member states, and in particular with Turkey (this might,
incidentally, help develop cooperation with a view to possible accession).
At the same time, the Union can, and probably should, exercise jurisdiction
by promoting agreements with other third-party countries as well as with
intergovernmental bodies,32 within which the common position of member
states would be defined, as specified in TEU Article 37 (former Article K.9).
Thanks to the Amsterdam Treaty, there are no doubts as to the ability
of member states to enter into such agreements under the Third Pillar. The
issue is rather whether all member states are automatically bound by such
agreements. One possibility could usefully be explored and expounded
upon by other fora: it involves the opting-out provision of which member
states may avail themselves for specific reasons linked to their Constitution
(TEU Article 24, former Article J.14), when specific agreements are entered
into. This allows for agreements with differential implementation and for
developments in line with a mix of united progress and trail-blazing
initiative. One may therefore assume that countries agreeing to cooperate
more closely in order to exercise public order functions will also enter into
agreements with third-party countries. Obviously, customary validity
requirements will need to be met: non-interference with the interests and
functions of the Community, compliance with the general principles of
Community law, opening of accession procedures to all member states
with the political will to do so, provided they meet the requisite criteria and
preconditions specified by contracting parties.
References
Ackerman, B. (2006), Before the Next Attack. Preserving Civil Liberties in an
Age of Terrorism, New Haven & London: Yale University Press.
Adam, R. (1999), La cooperazione in materia di giustizia e affari interni, in Il
Trattato di Amsterdam, Milan: Giuffrè.
Amato, G. (2007), “Unione: Le tentazioni sbagliate”, in Il Mulino, No. 2, p.
229.
In this respect, Opinion No.1/07 handed down by the Court of Justice on 7
February 2007 is significant, insofar as it allows for a new convention on judicial
cooperation in civil matters with Switzerland, Norway and Iceland.
32
TRAIL-BLAZING DEVELOPMENTS IN JUSTICE AND HOME AFFAIRS | 255
Bianchi, A. and Y. Naqvi (eds) (2004), Enforcing International Law Norms
Against Terrorism: Achievements and prospects, Oxford: Hart Publishing.
Bobbio, N. (1986), “Il potere invisibile e la democrazia”, in N. Bobbio, Il
futuro della democrazia, Turin: Einaudi.
Brady, H. (2005), “An Avant-garde for Internal Security”, in CER-Bulletin,
No. 44, October-November.
Cassese, S. (1997), Lo Stato introvabile, Rome: Donzelli.
Curtin, D.M. (2001), “The Developing Rights of Citizen Access to
Information on Asylum and Immigration Decision-Making”, in E.
Guild and C. Harlow (eds), Implementing Amsterdam: Immigration and
Asylum Rights in EC Law, Oxford: Hart Publishing.
della Cananea, G. (2009), “Global Security and Procedural Due Process of
Law Between the United Nations and the European Union”, Columbia
Journal of European Law, Vol. 15, No. 3, p. 511.
Delmas-Marty, M. (ed.) (1996), What Kind of Criminal Policy for Europe?, The
Hague, London andBoston: Kluwer Law International.
Diez-Picazo, L.M. (2005), Hacia una teoria de la coación en el derecho de la
Union Europea, in L. Ortega Alvarez (ed.), La seguridad integral europea,
Valladolid: Editorial Lex Nova.
Ehlermann, C.D. (1997), “Différentiation, flexibilité, coopération renforcée:
les nouvelles dispositions du traité d'Amsterdam”, Revue du Marché
Unique Européen, 3.
Giannini, M.S. (1990), “Sovranità”, in Enciclopedia del diritto, Vol. XLIII,
Milan: Giuffrè.
Guild, E. and C. Harlow (eds) (2001), Implementing Amsterdam: Immigration
and Asylum Rights in EC Law, Oxford: Hart Publishing.
Guild, E. and S. Peers (2001), “Deference or Defiance? The Court of Justice’s
Jurisdiction over Immigration and Asylum”, in E. Guild and C.
Harlow (eds), Implementing Amsterdam: Immigration and Asylum Rights
in EC Law, Oxford: Hart Publishing.
Klliker, A. (2005), Flexibility and European Unification: The Logic of
Differentiated Integration, London: Rowman & Littlefield.
Monar, J. (2003), “Cooperation in the Justice and Home Affairs Domain:
Characteristics, Constraints and Progress”, in European Integration,
Vol. 28, No. 5.
Monnet, J. (1976), Mémoires, Paris: Fayard.
256 | GIACINTO DELLA CANANEA
Ortega Alvarez, L. (2005), “Hacia un concepto integral de seguridad
europea”, in L. Ortega Alvarez (ed.), La seguridad integral europea,
Valladolid: Editorial Lex Nova.
Peers, S. (2005), “Governance and the Third Pillar: The Accountability of
Europol”, in D.M. Curtin and R.A. Wessels (eds), Good Governance and
the European Union. Reflections on Concepts, Institutions and Substance,
Antwerp-Oxford: Intersentia.
Peers, S. (2008), EU Justice and Home Affairs Law, Oxford: Oxford University
Press, 2nd edition.
Satta, I. (2003), “La cooperazione di polizia e giudiziaria in materia penale”,
in G. Bonvicini and G.L. Tosato (eds), Le relazioni internazionali
dell’Unione europea dopo i Trattati di Amsterdam e Nizza, Torino:
Giappichelli.
Siegel, S. (2008), Courts and Compliance in the European Union: The European
Arrest Warrant in National Constitutional Courts, Jean Monnet Working
Paper 05/08 (available at [email protected]).
Slaughter, A.M. (2005), A New World Order, Princeton, NJ: Princeton
University Press.
Stone Sweet, A. (1998), Integration, Supranational Governance and the
Institutionalization of the European Polity, in W. Sandholtz and A. Stone
Sweet (eds), European Integration and Supranational Governance,
Oxford: Oxford University Press.
Tosato, G.L. (2000), “Atti giuridici vincolanti e competenze della Corte
comunitaria nell’ambito del ‘Terzo pilastro’”, in R. Aliboni, F. Bruni,
A. Colombo and E. Greco (eds), L’Italia e la politica internazionale,
Bologna: Il Mulino.
Volcansek, M.L. and J.F. Stack (eds) (2005), Courts Crossing Borders: Blurring
Lines of Sovereignty, Durham, NC: Academic Press.
von Bogdandy, A. (2006), “Doctrine of European Principles”, in A. von
Bogdandy and J. Bast (eds), Principles of European Constitutional Law,
Oxford: Hart Publishing.
Weiler, J.H.H. (1999), The Constitution of Europe, Cambridge: Cambridge
University Press.
Ziller, J. (2004), La nouvelle constitution européenne, Paris : La Découverte.
Ziller, J. (2007), Il nuovo Trattato europeo, Bologna: Il Mulino.
14. THE ROLE OF PARLIAMENTS IN THE
DEMOCRATIC LIFE OF THE UNION
ANDREA MANZELLA
1.
The democratic principles of the Union and national
parliaments within the European parliamentary system
The role of national parliaments in the ‘proper functioning’ of the Union is
considered in the new Treaty of Lisbon as an informing principle of
European democracy. Together with the principles of democratic equality
(the ‘equal attention’ shown to all citizens by Union institutions),
representative democracy (the ‘direct representation’ of citizens in the
European Parliament) and participative democracy (legislative initiative,
consultation, citizens’ dialogue with the Union’s institutions), we now have
this principle of national parliamentary democracy, which is generally
anchored to the guiding concepts of subsidiarity and proportionality, and
more specifically linked to a variety of co-decision procedures regarding
the area of freedom, security and justice, constitutional revision and new
member state accession.
Deciding to give national parliaments a direct role (without
government intermediation), which is listed among the fundamental
principles of European Union action, meets a political requirement.
Opposition to the Union’s oft-mentioned ‘democratic deficit’ did in fact
reach its acme with the French and Dutch referenda. A visible and popular
way of increasing the European constitution’s ‘democraticity rate’
somehow had to be devised. Granting more power to national parliaments
was the easiest way forward, for a double, reassuring reason.
First of all, this helped convey the message that the ‘distant
constitution’ (a symbol, however, of countless perils such as the
dismantlement of the welfare state, the free circulation of out-of-control
migration, industrial relocation...) was being subjected to the supervision of
age-old, familiar national parliaments. Secondly, this helped reduce,
| 257
258 | ANDREA MANZELLA
through ‘parliamentarisation’, the scope of ‘handed-down’ institutional
innovation and its constitutional features, in an attempt to avoid further
recourse to referendum-based adventures (always dangerous when
ratification of international treaties is at stake; it is no accident that this is
an area non-eligible for referendum in Italy’s 1948 Constitution).
The anti-referendum function was the dominant reason
underpinning the Union’s decision. The “no” of French and Dutch voters
had in fact first and foremost been a disavowal of national governments
and parliaments – who favoured, by an overwhelming majority, the
Constitutional Treaty. A further refusal by referendum therefore risked
challenging the very representativeness of national governments and
parliaments. In other words, by taking on a direct safeguard role in the
EU’s decision-making mechanisms, the latter were in the end protecting
themselves against a domino effect of de-legitimisation.
These substantial political reasons are however not equally valid in
institutional terms, insofar as the powers granted to national parliaments
can actually produce a blocking effect in the EU’s already laborious
decision-making process.
The new role given to national parliaments in the Union has in fact
two different dimensions corresponding to two different – actually,
opposite – views of democracy in Europe. It therefore all depends on
whether the Union’s ‘democracy’ is to be measured by the yardstick of
systematic connections between various democratic legitimacies
(governments, the European parliament, national parliaments) taking part
in Union decisions, or conversely by a parameter linked to old strictly
national decision-making powers conferred to national parliaments on
community issues, or to pre-federal concepts (direct election of the
President of the European Commission, transnational lists for the European
parliament, European referendums...). As the old convergence-of-extremes
rule would have it, these two opposite concepts have in fact both
contributed to the birth and growth of the democratic deficit myth: which
clearly appears impossible to correct if one reasons in terms of such
parameters, and not in terms of European Union history and institutional
status.
Regarding the first aspect, the role of national parliaments takes on
three different modalities, concerning:
a)
the powers granted to national parliaments in specific procedures.
The principal innovation consists of the right to take part in the
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 259
‘conventions’ for Treaty revisions. Of higher strategic significance
because of their impact on the ‘ordinary’ integration motors appear
the powers of national parliaments related to the flexibility provisions
inserted into the Treaty: the bridging clauses leading to simplified
revision and voting procedures (Article 48 of TEU) and the
“historical” clause permitting an extension of the Union powers
(Article 352 TFEU);
b)
the right of national parliaments to receive Community information
directly; and
c)
their right to exercise advisory and policy orientation functions either
through COSAC, the body bringing together the national parliament
committees dealing with Union policies, or more importantly
through ‘effective’ and ‘regular’ inter-parliamentary cooperation
involving national parliaments and the European Parliament.
As to point a) above, the German Constitutional Court has evidenced,
by means of its recent decision of 30 June 2009, how the involvement of
national powers may significantly aggravate the European integration
process in its entirety. The Court has confirmed the openness to Europe of
the German constitution and what may be described as the ‘communicating
vases’ theory (the powers taken out of national parliaments can be
compensated by those vested in the European Parliament). Nevertheless,
the stringent request for prior approval of the German parliament will
cause an ‘indirect’ rigidity of European decisions on numerous areas.
As to points b) and c) above, these are powers and rights not only
appropriate to the Union’s multi-tiered constitutional model but actually
essential to the Union’s proper functioning. Joint and equal institutional
communication is indeed indispensable in order to give actual substance to
the interplay between various institutions. Each institution requires
channels of interference with all the others, as this is how the Union’s
decision-making process fully and seamlessly acquires legitimacy.
Likewise, the principle of loyal cooperation among various institutions
within the system requires visible inter-institution connections and
interfaces (through ‘inter-parliamentary conferences’, short-hand for which
could be the ‘COSAC formula’, where special delegations from the
European Parliament and relevant national parliamentary committees meet
with a view to expressing a majority opinion on specific topics). On this last
point, the most significant from the point of view of the system’s
institutional equilibrium, the new “Protocol on the role of national
260 | ANDREA MANZELLA
parliaments” interestingly includes an indirect broadening of European
Parliament jurisdiction to issues of “common security and defence
policies”. Organising inter-parliamentary conferences on such topics with
the specialized committees of national parliaments actually confers to the
European Parliament a potential right to scrutinise areas that the treaties
still consider to be the exclusive prerogative of national parliaments (as
shown by a later and almost maniacal statement according to which treaty
provisions regarding CSDP do not prejudice the specific nature of member
states’ security and defence policies).1
Setting aside specific problems, the Protocol’s mention of interparliamentary conferences is in line with the interaction required for
effective cooperation, typical of multi-tier constitutional systems. Clearly
this multilateral consultative participation in the decision-making process
is the key to the Union’s democraticity, insofar as it specifies the
connections of the various democratic legitimacies exercising different
powers but equally ‘responsible’, through their different investiture
mechanisms, vis-à-vis Europe’s voter constituency.
Regarding the second aspect, national parliaments’ role under the
new Protocol involves procedures regarding the appropriate application of
the subsidiarity and proportionality principles. These procedures may
include, depending on the number of national parliaments supporting any
given initiative, simple checks leading to requests for review (with a
quorum of one third of national parliaments) of draft legislative acts
(proposals by the European Commission, initiatives from a group of
member states, initiatives from the European Parliament, requests from the
Court of Justice or recommendations of the European Central Bank). But
they may tantamount to the exercise of an actual veto right, however
One should add that if these ‘conferences’ were to be held with the degree of
regularity generally called for in the Protocol, the survival of the already weakened
WEU Parliamentary Assembly would become very difficult to justify within the
general framework of European bodies. As to the Union itself, providing for
future “structured cooperation in the field of defence” raises issues regarding the
participation of members of the European and national parliaments representing
member states not party to this cooperation (clearly a sensitive institutional issue
for all ‘enhanced cooperation’ groups, even if cooperation in the area of common
defense is only open to states with significant military capacities).
1
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 261
‘concealed’ by a cumbersome procedure (the quorum required then is a
majority of national parliaments) with respect to draft legislative acts
subject to the general co-decision rule. The two procedures are obviously
radically different. While monitoring through requests for review is a
mechanism perfectly consistent with the Union’s specific multi-tier
constitutionalism, the same cannot be said of the ‘veto’ powers, which are
de facto connected to the emergence of a majority among national
parliaments (that is, to quantitative data, two votes per parliament, no
weights for national demographics – however relevant they are to the
Union’s institutional organisation).
The fact that national parliaments could block a draft legislative act
being processed according to the regular legislative co-decision rules does
indeed disrupt the multi-tier constitutional balance. Under an albeit
complex procedure, concealed behind Community legislation’s coactus
tamen volui, one of the system’s components has thus been granted an
improper right to interfere in decision-making. Clearly this interference
cannot be mistaken for the regular, cooperative version typical of modern
constitutional systems (national systems included, where under the
probable influence of EU procedures such ‘federalist’ practices are
becoming increasingly common). On the contrary, this is a genuine
invasion of the Union’s decision-making ground, which does indeed upset
the system’s balance by assigning to national parliaments the (albeit
indirect) power to paralyse the highly sensitive area of legislative initiative.
An area where the appreciation of Community-wide public interest and the
need for Union legislative action can best be grasped by the current
initiative incumbents (first and foremost the Commission, but also the
European Parliament, as well as groups of member states who in their
collegiality do express views that are not strictly nationalistic) – certainly
more so than by a majority of national parliaments, and their chance
convergence on a negative blocking stance. One could add to this, as some
have done, a number of pointed observations on the deficiencies of
enhanced parliamentarisation as a yardstick for Union democratisation. Or,
to put it differently, as a means of appraising a system where interest
representation is organised through checks and balances combining
legitimacy and efficiency – a model far removed from the parliamentary
one currently prevalent in Europe.
One can however object - and this should be borne in mind for any
comprehensive appreciation of the injury involved - that this monitoring or
262 | ANDREA MANZELLA
check only applies in areas where the Union does not have exclusive
jurisdiction, but shares authority with member states. Well, even taking this
objection on board, it is quite clear that (national) parliamentarisation of
decision-making in such areas corresponds on the one hand to a hollowing
out of the Union’s legislative powers – and more specifically of the role
played by governments within the (European) Council of Ministers – and
on the other, to the slotting in, albeit with negative powers, of a third
legislator figure within the EU’s complex institutional balance. The
resulting imbalance is clear to see, even disregarding the perils of decisionmaking paralysis entailed by the new procedure in an already ‘stressed-tothe-limits’ system (knowing that waning of legitimacy always comes in the
wake of a loss in efficiency...).
The procedure moreover does nothing to increase the Union’s
democraticity rate. National parliaments are already entitled to resort,
within their national systems, to effective instruments to control and
possibly block their governments-acting as co-European legislators (think
of Italy – but not only – where the ‘parliamentary reservation’ argument
can be used against the government upstream of all European decisions...).
The procedure clearly impacts the fullness of player legitimization however
(European Parliament, Council, European Commission) within the regular
legislative process. In other words, this is a negative sum game especially
as regards the so-called democratic deficit that it somehow set out to
correct.
2.
The political nature of the subsidiarity and proportionality
principles
The above comments yield an even direr conclusion when one reflects on
the eminently political nature of the subsidiarity and proportionality
principles. This intrinsic political nature is first of all linked to the
fundamental role played by the subsidiarity principle in the concrete
identification of the most appropriate level of government for a given task
(the bias favouring ‘close to the citizen’ political action is nothing but a very
general base criterion, always open to waivers for the higher levels of
government, in order to accommodate requirements of provision scope and
efficiency). The displacement of decision-making levels is clearly a political
act per se, and one of the more significant ones.
This reading is emphasised by the absolutely political criteria that run
through the definition of these principles. Consider the concepts of
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 263
‘sufficiency’ of member state action, of better achievement by the Union of
its goals, of decision scale and effects assessment and, as regards the
proportionality principle (which must however be viewed as an internal
limitation of the subsidiarity principle, as we shall see later in more detail),
the requirement that Community action not go “beyond what is necessary
to achieve the objectives (of this Treaty)”. These are all parameters the legal
effectiveness of which is deeply dependent on their strictly political
appreciation.
One element however provides at least a partial corrective to this
primacy of the political sphere, namely the jurisdiction given (under
Protocol Article 8) to the Union’s Court of Justice. The Court shall indeed
have jurisdiction in actions on grounds of the subsidiarity principle
infringement brought by member states or transmitted by states on behalf
of their parliaments. This provision, which should take on a key role in the
system, calls for at least three comments.
The first concerns the fact that the Court of Justice (following the
tested road taken by authoritative constitutional case law at the national
level) may decide it is the ultimate judge of the appropriateness of levels at
which decisions are made. Even if the legal system assumes that appeals
come from below, it is quite obvious that the Court of Justice can provide
(as in a boomerang effect) legitimisation and consolidation to the Union’s
decision-making over that of appealing states (and their parliaments).
The second comment concerns the possible juridification via case law
of criteria that are per se open to considerable political discretion. The
Court is indeed the authority that can provide legal meaning to the
justification requirement (stated in Protocol Article 5) imposed upon those
bodies entitled to put forth draft legislation. Creative constitutional case
law is indeed the only way to provide legal certainty and finality to
requirements to submit “detailed statements”, “qualitative and wherever
possible, quantitative indicators”, not to mention the taking into account
“of the need for any burden, whether financial or administrative, falling
upon various levels of government as well as “economic operators and
citizens” to be minimized, etc. These requirements, were they to remain
entrusted to political decision-makers, would lend themselves to very
volatile and ambiguous application.
The third comment concerns the peculiarity of a provision – the text
and context of which are both based on the elimination of member state
government intermediation – specifying, with respect to the Court of
264 | ANDREA MANZELLA
Justice, that member states are empowered to seek legal remedies (or
empowered to do so on behalf of their parliaments, should parliaments
take the initiative of an appeal under the subsidiarity principle).
In other words, it is only on the Court’s very threshold that the
subsidiarity principle eludes the rules of an entirely political game, with
decisions taken on the basis of the balance of power struck at a given point
in time among Union bodies and national parliaments. At the current
juncture in the ups and downs of European integration the pendulum’s
swing seems to be favouring, at least at symbolic moments, the granting of
decision-making powers to national parliaments, including in matters of
community significance. A provision such as Protocol Article 8, isolated in
its ‘orthodoxy’, provides a measure of the political and re-nationalisation
effects inherent in the rest of the mechanism.
3.
The irresistible political expansion of proportionality control
National parliament monitoring is exercised solely over draft legislative act
compliance with the subsidiarity principle (Articles 6 and 7). But all Union
institutions shall ensure constant respect for the principles of both
subsidiarity and proportionality (Article 1). And draft legislative act
justification concerns both the subsidiarity and the proportionality
principles (Article 5). That said, both the title and the ‘whereases’ of the
Protocol speak indifferently, when addressing “application” and its
monitoring system, of both principles.
Another very relevant factual clue has to be borne in mind. Namely
that during the preliminary try-outs of the new monitoring system
promoted by COSAC, the reasoned opinions of participating national
parliaments frequently invoked proportionality, as a principle of political
conditionality applicable to positive assessments of subsidiarity, with quite
stringent provisions – inspired by national concerns – regarding Union
action.2
Trial subsidiarity and proportionality checks performed under COSAC auspices
on 17 July 2006 and 31 October 2006 focused on the draft directives regarding
applicable law and jurisdiction in matrimonial matters, COM(2006) 399, and postal
services liberalisation COM(2006) 594.Twenty-two national chambers from 17
member states took part in the first check (on law and jurisdiction in matrimonial
matters). Almost all, with the exception of the Dutch House of Parliament and the
2
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 265
In the face of these formal and substantive elements, one wonders
whether limiting national parliament monitoring solely to subsidiarity3 is
really defensible. And whether conversely the ‘release’ provided by
comments concerning proportionality couldn’t actually be seen as a
contribution – clearly more political still – to the drafting of legislative acts:
but without the delays and other problems connected to the exercise of
subsidiarity checks per se.
In all fairness one has to bear in mind that the proportionality
principle plays out in a field that can in no way be reduced to a legal
dimension, and dealt with solely by the courts. As an internal and
subsequent criterion for the review of ‘subsidiary’ legitimacy it aims in fact
to check that the content and form of action do not go “beyond what is
necessary to achieve the objectives” of the Union. It therefore recalls, in this
matching of means and end, of power and abuse thereof the basic tenets of
a rigorous administrative judicial process, per se irreconcilable with the
‘constitutional’ review of competences, covered by Protocol Article 8 (laden
as it is with other difficulties, regarding access and reference parameters...).
That said, practical experimentation in any event suggests the
advisability of an ‘extensive’ reading of the Protocol: on the one hand, there
is this rigorous fencing in of legally effective controls (whether ex ante and
political, or ex post and juridicial) to the sole area of subsidiarity, while on
the other there is the admissibility, in the absence of any specific legislation,
of a parliamentary practice of ‘observations’ based on the proportionality
Lower House of the Czech Republic, expressed favourable opinions with respect to
the proportionality principle. The second trial check (on postal services) elicited
participation by 27 national chambers representing 21 member states. Luxemburg’s
Chambre des Députés was the only parliament to raise an issue of subsidiarity
principle breach, while 5 chambers pointed out the inadequacy of the
Commission’s justifications in this respect. Seven chambers pointed out a breach of
the proportionality principle and expressed corresponding reservations.
3 This limitation is the outcome of the reasoned confrontation between
‘reductionists’ and ‘amplifiers’ that took place within the Giscard d’Estaing
Convention’s Working Group I on the Principle of Subsidiarity (see, in this
connection, the Group’s report to the Members of the Convention, CONV 286/02,
23 September 2002).
266 | ANDREA MANZELLA
principle, with an obligation for the institution submitting the draft
legislation to respond to such observations in its final justification.
The rationale for this would appear to be the need to avoid having
national parliaments transform their comments on a given project’s
‘proportionality’ into observations regarding its ‘subsidiary’ legitimacy, for
fear the former would not properly be taken into account. The setting up,
through practice, of a parallel and soft procedure regarding proportionality
could therefore be an appropriate counter-measure geared to a trend that
has begun to emerge (as an early warning sign...) in national parliamentary
practice. This trend is well-known to some aspects of administrative law
when it comes to fuzzy lines separating excess of power and legality vices.
4.
The improper interaction of quorums
The main threat of divergence from the legal paradigm that, through crises
and standstills, has nevertheless allowed unprecedented inter-state
integration does not however come from individual national parliaments.
The new Article in the Treaty on European Union regrouping the
previously scattered powers bestowed upon national parliaments provides
them with an enhanced configuration. The powers concerned correspond
however to areas of community law of intergovernmental relevance and
national parliament intervention here ‘mirrors’ that of corresponding
governments.
This applies in particular to participation in the mechanisms geared
to assessing Union policy implementation in the area of freedom, security
and justice, with a view to encouraging the full application of the mutual
recognition principle. In this same ‘area’ national parliaments are said to be
“associated” to the monitoring of Europol activities and to the evaluation of
judicial cooperation activities performed by Eurojust. Similar
considerations also apply to the normal Treaty revision procedure. In this
framework each national parliament has the power to ratify or reject. The
same also applies to national requests of accession to the Union.
The specificity introduced by the mechanisms signalling subsidiarity
(or proportionality) infringements – to the breaking point of the system’s
logic – stems from the collegiality requirement they set for national
parliament action. The legal effects of compliance checks as performed by
individual parliaments are in fact dependent on there being a quorum of
national parliaments. This necessary collegiality has echoes of a yet unmaterialised ‘third chamber’ (after the European Parliament and the
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 267
European Council of Ministers). And the quorum requirement in an area
where the political rate is extremely high, as mentioned earlier, is what
risks upsetting the Union’s unified institutional make-up.
The concern continues to apply even when the 1/3 of national
parliament votes quorum4 simply allows for a check resulting in a request
for review. This may apply to all draft legislative acts (proposed by the
Commission, the European Parliament, a group of member states, the
Court of Justice, the European Central Bank or the European Investment
Bank). The concern however takes on far more serious relevance when a
quorum equal to a majority of national parliaments can ultimately block
draft legislation, because of the ‘politically’ unstoppable trigger of a simple
majority of national parliaments deciding to oppose a draft5 under the
‘regular legislative procedure’ that is, the basic co-decision procedure
giving the Commission a monopoly over initiative and where the
‘European legislator’ is made up of the Council of Ministers and the
European Parliament.
If the Commission then upholds its draft, despite a contrary vote by a
majority of national parliaments, review of the project does get blocked, in
the case of a procedural – not substantive –vote of 55% of all members of
the Council of Ministers or a majority of expressed votes in the European
Parliament.
Requests for a ‘third Chamber’ made up of national parliamentary
delegations and designed to be a ‘subsidiarity Chamber” have been
recurrent in the ongoing controversy over the Union’s democratic deficit.
They have however run into strong doctrinal and practical objections, as
reflected in the following passage:
The setting up of a new institution representing national
parliaments would not increase the system’s democratic
legitimacy. On the contrary, it would risk reducing it. This
“chamber” would indeed be made up of national representatives
elected by the parliaments of individual Member States. It would
4 Currently at 54 votes: one third therefore equals 18 votes, that are brought down
to 13, i.e. one quarter if the topic is the area of freedom, security and justice.
5 In the current 54 vote configuration this majority would be equal to 28 votes,
corresponding to 14 member states: Protocol provisions make no mention of any
computation of the corresponding population.
268 | ANDREA MANZELLA
therefore not have a direct popular mandate, as does the European
Parliament, but some sort of “democratic legitimacy of second
degree”, as does the Council. This would therefore increase the
system’s complexity without any real counterpart. Conversely, it
would almost certainly engage in competition with the European
Parliament.6
On the basis of the legitimisation inferred from the new subsidiarity
monitoring mechanism, the ‘third Chamber’ might thus take on a ‘diffuse’
form, its variable geometry changing from time to time, with one quorum
for review requests, and another for procedural blockage. There actually is
a forum for the convergence into legal quorums of individual
parliamentary positions (a forum actually set up to encourage such
operation). This is the COSAC Secretariat, which despite strong resistance
on the part of successive Italian delegations in recent years (only initially
supported by European Parliament delegations) and the objective
limitations that have thus been brought to bear on both its numbers and its
functions, nevertheless is a sufficient forum for the bringing together (if not
the promotion) of the requisite quorums.7
6
See.Verola (2006, pp. 206-207).
See COSAC Rule of Procedure 11bis, in the latest version submitted to the Lisbon
Conference, 15-16 October 2007: “The COSAC Secretariat shall be composed of
officials from the Parliaments of the Presidential Troika, and a permanent member
who supports the Secretariat in its activities. The officials from the Parliaments of
the Presidential Troika shall be appointed by each of the relevant Parliaments for a
non-renewable period of eighteen months. The permanent member shall be
appointed by the COSAC Chairpersons on the proposal of the Presidential Troika.
He or she shall be an official of a national Parliament and shall remain in office for
two years with the possibility of one renewal. The COSAC Secretariat shall assist
the Presidency and the secretariat of the host Parliament in all its tasks. The
members of the COSAC Secretariat shall perform their duties under the political
responsibility of the COSAC Presidency and the Presidential Troika or according
to the decisions taken by COSAC meetings. The permanent member shall
coordinate the activities of the COSAC Secretariat under the direction of the
Parliament holding the Presidency. The cost for seconding the permanent member
of the Secretariat to Brussels and other necessary technical costs of the Secretariat
are jointly borne by Parliaments wishing to contribute.” (According to the report
submitted by the Working group on the co-funding of the permanent member of
the COSAC Secretariat, dated 11 September 2006, there is an agreement providing
7
THE ROLE OF PARLIAMENTS IN THE DEMOCRATIC LIFE OF THE UNION | 269
In this context the issue of whether the mechanism “should be
activated by subsidiarity challenges to different points in the proposed act,
or whether a quorum is required on the same point” takes on considerable
significance8.
All things considered, subsidiarity checks cannot be equated with
point checks of draft legislation. Contrary to the proportionality principle,
which lends itself more readily to point assessments, the subsidiarity
principle – in this specific case focused on the appropriateness of the
proposed level of public decision-making – per se only implies a
comprehensive assessment of finalities. In both letter and spirit, provisions
relative to subsidiarity checks therefore rule out a blow-by-blow analysis of
the various provisions making up any draft legislation, unless the process
is geared to clarifying the goal pursued by the draft.
All in all, under subsidiarity checks, the assessment parameter – here
too exquisitely political – lies in the draft legislation justification rather than
in the rules contained in the draft per se. If anything, the rules serve as
counter-proof (to strengthen or weaken justifications, depending on
governments’ likes or dislikes...) for the actual goals pursued. But this is a
teleological element, to be used in the end to support the decision-maker’s
legitimate choice. Clearly, a goal-oriented assessment along these lines
therefore refers to the draft in its entirety, which rules out any point-bypoint analysis. And this provides an argument additional to the one put
before, regarding the practical usefulness of opening a channel for
observations relative to proportionality, so as to avoid their ‘emergence’ –
politically possible, however inappropriate – into the area of subsidiarity.
for the co-funding of COSAC administrative expenditure. This includes computers
and telecommunications, stationery... The European Parliament puts furnished
premises at COSAC’s disposal, free of charge. It has been agreed that the total
amount of cost contributions linked to the permanent member should not exceed
€80,000 a year).
8 The question appears in the following document: “Il progetto di mandato alla
Conferenza intergovernativa per la riforma dei Trattati europei”, Italian Senate,
Relations with the European Union Division, No. 59, 16 July 2007, p. 12.
270 | ANDREA MANZELLA
5.
Conclusions: Early warning for the early warning
In order to conclude this analysis very briefly, one could say that a breach
has clearly been opened with the subsidiarity monitoring mechanism,
which could allow neo-nationalistic positions to erupt both in the Union’s
values and in its multi-tier constitutional system. This system requires and
multiplies functional interferences with a consultative purpose, but would
however rule out any impingement on decision-making powers – whether
positive or negative – as laid out in the treaties.
The mechanism introduced is clearly influenced by public opinion
sentiment assigning to difficult Community-wide decisions – with obvious
factual misrepresentations – a whole set of political and social problems
that have almost always been due – in terms of severity – to causes external
to the Union. The preferred solution has been to address the lingering
democratic deficit issue not through more mature controls to be exercised
by national parliaments over governments and by the European Parliament
over the action of the Union as a whole, but rather through direct national
parliament activism with respect to community legislative procedures
In order to restore balance, governments will therefore have to
exercise ‘control’ over their parliaments, and if necessary, rein them in. This
shows how choosing the wrong tack to combat the so-called democratic
deficit can lead to a democratic paradox. If the Union’s institutional balance
is to be safeguarded, with a view to exorcising the peril of a fragmentation
of its decision-making processes by national parliaments – of all perils, this
is certainly the most severe.
References
Senato della Repubblica (Italian Senate) (2007), Il progetto di mandato alla
Conferenza intergovernativa per la riforma dei Trattati europei, Ufficio dei
rapporti con le istituzioni dell’Unione europea (Relations with the
European Union Division), No. 59, 16 July, p. 12.
Verola, N. (2006), L'Europa legittima, Florence: Passigli Editore.
15. THE SHAPE OF POST-LISBON EUROPE
GIAN LUIGI TOSATO
1.
The new Treaty’s structure
The Lisbon Treaty’s structure is the result of a compromise between
opponents and supporters of the previous Constitutional Treaty. Its
opponents gained the upper hand with regard to form and its supporters
with regard to content. Formally, what we have is a revision treaty, like
those of Amsterdam and Nice. It simply modifies existing treaties (the
Treaty on the European Union and the Treaty establishing the European
Community), without replacing them; it is, as its official description reads,
a ‘Reform Treaty’. In substance, the new treaty includes many of the
innovations of the Constitutional Treaty rejected by the French and Dutch
referenda. The nature and number of changes are such as to have a
profound effect on the existing treaties.
Form and substance do not mesh well in the new treaty in view of the
clear contrast between container and content. The container, a mere
amending instrument, seems unsuited to accommodate the content that has
been poured into it, in view of the scale and significance of the reforms. The
immediate consequence is that the new treaty is difficult to decipher. The
document produced is long and complex and requires a labourious
comparison between the new revision text and the old amended texts, and
between the latter and a text (the constitutional text) that has formally been
abandoned. The document’s meaning is all the more difficult to grasp as it
is supplemented by several additional protocols and declarations intended
to supplement, clarify and sometimes even depart from the text’s
provisions. Two significant examples are the goal of free and fair
competition, initially eliminated from the text, then salvaged in an
additional protocol; and the primacy of Union law over domestic law, also
removed initially and later slipped back in through a declaration, which
refers to consolidated Community case law in this area.
| 271
272 | GIAN LUIGI TOSATO
These aspects of the treaty have elicited an avalanche of criticism.
Initial commentators spoke of its labyrinthine nature, rife with crossreferences and legalisms: just the opposite of the calls contained in the Nice
and Laeken Declarations on the Future of Europe (in January and
December 2001). Simplification and transparency, two key words in these
documents, were to have been the guiding principles for the future
development of European integration. Instead, after a labourious gestation
of over six years, what has been delivered is a text that is neither simple nor
transparent and which is certainly difficult to understand for the European
citizens it was intended for.
It is hard to deny that this criticism has a point; the new treaty is
really obscure and tortuous. One should however not dwell only on these
more visible aspects of the new treaty. The criticism summarised above
only reflects a first level of analysis. Going beyond the revisional method
used and looking at the new Treaty not in itself, but rather from the point
of view of its impact on the existing treaties and the overall architecture of
the Union, a different picture emerges, which marks substantial progress in
the areas of simplification and re-organisation of the current system.
2.
A simplified and re-organised system
After Lisbon, two founding treaties still remain. But previously, each
related to a different entity (Union and Community), and a distinct legal
system (Union law and Community law), not to mention the three pillars
(two inside the Union and the third represented by the Community). Now,
despite there still being two treaties, we have a single entity (the Union),
with a single system and a single set of institutions, where the distinction
between pillars has been (almost) abolished. This marks the end of the
absurd dualism between Union and Community produced by the
Maastricht compromises, the elimination of which was long overdue.
This represents a significant simplification of the European
architecture. Of course the approach had already been included in the
Constitutional Treaty and thus to some extent can be considered as already
having been accepted. But it is a good thing for it to have been given
further and, one hopes, final endorsement. The Treaty of Lisbon introduces
another new ingredient in the re-organisation of the system, which goes
beyond the Constitutional Treaty and holds potential for promising future
developments.
THE SHAPE OF POST-LISBON EUROPE | 273
As just mentioned, despite the fact that there are still two founding
treaties, they now refer to a single entity. The primary rules of the Union
are thus distributed between two distinct texts: the Treaty on the Union
and the Treaty on the Functioning of the Union. And even though it is
pointed out that both have equal legal value, in fact they differ in terms of
content and formal legal regime.
The first treaty contains the principles and fundamental rules of the
Union; it establishes its goals, values, competences, institutional structure,
relations with member states and with European citizens and procedures
for amendment, accession and withdrawal. The second treaty lays down
the rules under which its various bodies will operate, the way in which the
domestic market is regulated as well as provisions governing the
implementation of common policies. The provisions of the second treaty
concerning policies and deliberative procedures are subject to a simplified
amendment procedure. The intergovernmental conference stage is bypassed and, in the case of deliberative procedures, internal ratifications are
considered as granted unless individual national parliaments formally
dissent. One could borrow a term used for the European Coal and Steel
Community (ECSC) to define this simplified procedure as ‘small revision’,
to distinguish it from regular and solemn amendments.1
Admittedly, the way provisions are distributed between the two texts
is not always consistent. Some of the provisions of the Treaty on the Union
should really have been placed in the other treaty, like the ‘specific’ rules
relating to common foreign and security policy. Greater simplification of
the ‘small revision’ procedure would have also been preferable. The
simplified procedure only applies to some of the provisions of the second
treaty, and yet it still requires approval on the part of all member states at
government and parliamentary level. Nevertheless, we find ourselves with
a major innovation. The Union’s primary rules are not only grouped into
separate documents, they are also distinguished by significant differences
of a substantive and formal nature.
Ever since its inception, the process of European construction
featured the intermingling within the same treaty of basic institutional
1 The ‘small revision’ expression has been used within the ECSC with reference to
the revision procedure set out in Article 95 of the Treaty. By means of a ‘small
revision’ an adjustment to the powers of the High Authority could be enacted.
274 | GIAN LUIGI TOSATO
elements together with rules applicable to specific sectors. This may have
been justifiable at the time of the ECSC, which dealt with a clearly defined
sector, but became increasingly pointless with the European Economic
Community (EEC) and the European Union and the progressive extension
of their competences.2 The Constitutional Treaty provided no remedy to
this problem, which now seems in the process of being solved.
We now have on the one hand a basic treaty, the Treaty on the Union,
the provisions of which establish its fundamental law; and on the other
hand an implementing treaty, a kind of ‘organic law’, the Treaty on the
Functioning of the Union. This gives rise to a two-tier system, with the
implementing treaty in a subordinate position to the basic treaty. In view of
their nature, the provisions of the basic treaty (fundamental law) require a
more stable consensus over time; they therefore should not be open to optouts on the part of individual members and it is reasonable that they
require a more stringent amendment procedure. On the other hand, the
provisions of the implementing treaty (organic law) are such as to require
more frequent adaptations, in line with changes in circumstances and
prevailing political positions; in this case, therefore, there appears to be a
rationale for a more flexible amendment and opt-out system.
It is hard to say whether the system described is intentional. The
concern addressed was likely of a different nature, connected to the
ratification process and the referendum risk. Emphasis was deliberately
laid on the discontinuity between the new treaty and the constitutional one,
the former an amending treaty, the latter a treaty replacing its predecessors.
As a result, two treaties remain, despite the fact that they refer to a single
entity. But what might appear to be an incongruity, ascribable to
happenstance rather than intention, ends up producing a positive
innovation. It brings about the re-organisation and simplification of the
system, basing it on two separate groups of primary rules.
It will now be easier for the two groups of rules, and their respective
treaties to evolve independently of each other. In particular, it will be
possible to amend the sectoral regulations of the Union without affecting
its institutional structure. This all leads to a double-positive effect –
2 Not surprisingly, the Laeken Declaration of 15 December 2001 indicated the
desirability of making a distinction between a basic treaty and other treaty
provisions.
THE SHAPE OF POST-LISBON EUROPE | 275
endowing the system with greater flexibility and opening new areas to
political debate. As has been rightly pointed out by Micossi (in this
volume), the policies of the Union have become normal policies, and
political divisions may now take shape around them, in line with
traditional left/right divisions. This will certainly contribute to
strengthening the Union’s democratic life (and thereby its legitimacy).
3.
The ‘constitutional’ issue
The new treaty eliminates any trace of constitutional names or signs. The
terms ‘constitution’, foreign ‘minister’, ‘law’, ‘framework law’ are all
banished; the symbols of the Union (flag, anthem, motto) are equally
discarded, as is any explicit reference to the primacy of Union law. This is
tantamount to a full-scale requiem for the European Constitution, almost a
kind of damnatio memoriae.
The countries that had rejected the Constitutional Treaty through
referendum or that in any case were opposed to the text have thus been
given the tangible sign they wanted of a break with the past. They can now
tell their publics that the new treaty is radically different from its
predecessor. On the other hand, countries that were in favour of the
Constitution had to accept this ‘sacrifice’, because otherwise no agreement
would have been achieved. But what is the real effect of deleting the
constitutional names and symbols? A clarification appears desirable.
The ‘constitution’ concept can be understood in a number of different
ways.3 Some believe it has a very specific and highly circumscribed
historical meaning; that its purpose is to identify the basic law of a political
community with features specific to modern State systems. Outside of this
context, it would be mistaken to use the term, as it would lose its distinctive
nature and give rise to misunderstandings. If that is so, there is obviously
no justification for using the term in a European context. As the Union is
not a State, its founding act cannot be a constitution. And the fact that the
term is used, as in the previous treaty, does nothing to change its nature: it
remains a treaty and not a constitution.
One can argue, however, that issues of modern constitutionalism also
apply to supranational political entities endowed with authority over
3
On this point see Cassese (2002) and Amato (2003).
276 | GIAN LUIGI TOSATO
member states and individuals. It would then be quite proper to recognise
the constitutional nature of those Union norms that govern fundamental
aspects of the Union (institutions, competences, procedures, guarantees,
etc.). Therefore the European Court of Justice made no mistake in its past
rulings (Les Verts judgement, 1986; SEE opinion, 1991) when it referred to
the Community Treaty as a constitutional charter; and it is equally not
mistaken to use the same term today with regard to the Treaty establishing
the Union, despite the deletion of all and any constitutional terminology.
So it all depends on which concept of constitution one takes as a
starting point. Clearly, its applicability to the Union is to be ruled out
assuming that there is an inseparable link between constitution and State.
This only means, however, that the Union is not a State-type entity; and not
that the Union can be equated with common international organisations,
regulated by international covenants. Conversely, under the other line of
reasoning, the founding act of the Union can be deemed to have a
constitutional character, but this does not mean assigning State identity to
the Union. The two issues – the nature of the Union and the definition of its
founding act – remain separate.
So far, we have examined the issues from a legal standpoint.
However, signs and symbols also carry political weight. And as the
adoption of constitutional terminology provided momentum for a closer
integration of the peoples of Europe, discarding it now moves in the
opposite direction. It signals a retreat back to national values and interests,
or at least a moment of uncertainty with regard to the outcome of the
process of European construction. That said, some symbols, such as the
Union’s flag, remain solidly in place, despite the attempt to dispatch them
with the stroke of a pen – a warning that reality is much stronger than any
attempt to force matters through regulations.
4.
Institutions and decision-making efficiency
In the area of institutions, we had become accustomed to the Community
trio or triangle: Parliament, Commission and Council. In the unified
structure of the Union we now also have the European Council, which did
actually already exist but without a clearly defined position. The trio has
been converted into a quartet and the triangle into a rectangle. At the lower
corners we find the European Parliament and the Council; at the upper
corners, the Commission and the European Council. On one of the two
vertical sides we find institutions with a supranational vocation – the
THE SHAPE OF POST-LISBON EUROPE | 277
European Parliament and the Commission; on the other, intergovernmental institutions – the two councils. Each institution interacts with
all the others; relations therefore develop not only along the sides of the
figure but also along its diagonals.
The new treaty also ushers in a new player, national parliaments. For
better or for worse (see Manzella, in this volume), the quartet thus evolves
into a quintet. Hard to say exactly where the newcomer should be placed.
Formally, this player is not one of the Union’s institutions, but it has
become a stable part of its legislative procedures and may exercise a
blocking influence on new legislation. It is also difficult to decide whether
to position national parliaments on the supranational or the intergovernmental axis. They contain a bit of both: as democratic bodies
representing the people, national parliaments appear to be comparable to
the European Parliament; at the same time they express national rather
than supranational interests. What is clear is that the institutional dynamics
of the Union now include a new player interacting with all the others.
The picture just outlined is a mere sketch; it would require a detailed
account of the tasks and duties of the various players. However, it
delineates a particularly complex institutional system. Certainly this could
be described in positive terms, as an increase in fora, scrutiny and
guarantees within the Union. But if the yardstick is decision-making
efficiency, the assessment may be somewhat different. What seems to be
emerging is a consensus-based system, more effective at stalling decisions
rather than facilitating them, and at encouraging deferral and (unavoidably
small-scale) compromise solutions, rather than ensuring promptness of
action and the prevalence of European interests. This is aggravated by the
voting procedures in the two councils. All European Council decisions
have to be unanimous and the same applies to major Council decisions.
Furthermore, defining a new system for calculating majorities within
Council is practically postponed until 2017, or even later because of the
reference to the ‘Ioannina’ approach.
Summing up, the Union’s decision-making procedures feature a
plurality of players and an unavoidable requirement for general consensus
among national governments, with all the implications this has in today’s
27-country Europe. Decisions are therefore likely to remain labourious and
uncertain in outcome and the problem of decision-making efficiency (so
central and vital for Europe) may remain unresolved even after the reform.
278 | GIAN LUIGI TOSATO
5.
Three candidates for the role of Mr (or Ms) Europe
The discussion over institutions calls for an appendix, of not negligible
importance. Who will be Mr (or Ms) Europe in the new Union structure?
There are a number of candidates for the part. The three frontrunners are
the President of the European Council, the High Representative for Foreign
Affairs and Security Policy and the President of the Commission. As a
matter of fact, one could also add the rotating President of the Council and
the President of the European Parliament. But the position of the President
of the Council is weakened because of the continuing half-yearly rotation.
As to the President of the European Parliament, although the Parliament is
certainly of increasing significance as a legislative and political body, it
can’t as yet compete with the traditional governing institutions of the
Union (Councils and Commission). Therefore the race can be narrowed
down to the three main contenders.
Each has both strong and weak points. The President of the European
Council is backed by the weight of the most authoritative government
institution, and will have the task of establishing the body’s agenda and
implementing it. However, s/he does not have autonomous decisionmaking powers. The President of the Commission can rely on the resources
and structures of a well-established institution, on its prerogatives over
foreign trade and a special relationship with the European Parliament. To
some extent, it is the recognised voice of economic and supranational
Europe. Major issues of foreign (and domestic) policy however remain the
province of national governments and consequently of the councils
representing them. As far as the High Representative is concerned, despite
the change in name, s/he basically inherits the role and functions assigned
to the minister for foreign affairs under the Constitutional Treaty. S/he will
therefore be responsible for conducting the Union’s foreign, security and
defence policy, taking advantage of his two hats as Vice-President of the
Commission and President of the Council on External Relations, combining
the functions of the two positions in his person. S/he will furthermore be
able to make use of a dedicated structure, the embryo of a European
diplomatic body. The position of the High Representative however appears
to some extent subordinate to those of the President of the Commission and
the President of the European Council.
In light of the above considerations, two scenarios are possible: either
that following a competition between the three figures, one prevails and
becomes the true Mr (or Ms) Europe; or else that positive cooperation is
THE SHAPE OF POST-LISBON EUROPE | 279
established between the three, so that Europe is represented by a troika
rather than a single individual. Also possible are dual solutions, in which
case the High Representative would hold the balance of power. It is
difficult to predict how this will play out. It will in part depend on the
personalities of the people chosen for the three positions and in part on the
balance between governmental and supranational institutions; more
importantly, the weight of facts and realities may well exercise a decisive
influence. One can only hope that the three figures will not hinder each
other in the pursuit of personal visibility and success and that a spirit of
cooperation will prevail. Until we have one person jointly holding the
presidency of the European Council and the Commission (something that
is not ruled out in the new Treaty),4 the aforementioned troika could, if
united and cohesive, provide a powerful engine for initiative and action.
The Union stands in great need of such a boost in authority in order to
overcome national resistance and take on a leading role on the world stage.
6.
The market: Between competition and general interest
Turning from institutions to the Union’s common policies, the list of open
issues grows. One example, in the economic area, relates to competition
policy.
Market and competition rules have characterised 50 years of
European integration, being its main driving force. But today competition
has been removed from the list of Union goals. These now include
sustainable development and balanced economic growth, more generally
the economic and social well-being of its citizens. Competition has been
downgraded to a mere instrument (together with others) in the pursuit of
such goals. The importance of this instrument is however reiterated in a
special protocol. One may thus wonder what the future role of competition
will be.
We need to understand whether the previous open and competitive
market approach will continue to prevail, as would seem to be required by
the protocol; or whether this is the beginning of a new season in the
relations between politics and the economy, between the market and the
4 Under the Lisbon Treaty the office of President of the European Council is
incompatible solely with a national office (see the new Article 15 of the Treaty on
the European Union).
280 | GIAN LUIGI TOSATO
public interest, as would seem to be suggested by the elimination of
competition from the goals of the Union. The Treaty of Lisbon gives
contradictory signals in this area and future developments are not easy to
predict. For the time being, we can but note the conflicting views of those
advocating greater flexibility in competition law implementation in order
to give greater scope to industrial policy goals and public concerns
(environment, consumers, employment) and those who fear the onset of a
new course featuring regulatory constraints that may hinder free market
dynamics.
The same question arises with respect to general interest services. The
current Community Treaty has two provisions concerning these services:
one has existed since the establishment of the Community (Article 86),
whereas the other derives from the Amsterdam amendment (Article 16).
The first establishes that enterprises providing public services must be fully
subject to market and competition rules, provided this does not hinder
their mission. Should this be the case, an exemption applies, which the
Commission and the Court long interpreted very restrictively. The second
provision, from the Amsterdam text, emphasises the importance of public
services and urges the Community and its member states to ensure they
operate adequately. Following the adoption of this provision, the
exemption has been interpreted less restrictively. With the new treaty, the
two provisions remain in force and a special protocol has been added
thereto, which recognises national authorities’ broad discretionary powers
in organising services of general interest.
How should the protocol be read? It states that its provisions are
purely interpretative, but in that case why insert them? This may be
deemed nothing more than a redundancy in the new treaty without any
concrete implications. Or it may be a signal akin to the elimination of
competition from the goals of the Union. In which case the special regime
for public services would be strengthened and such services would make
up a sort of ‘free zone’ set aside for state jurisdiction and to a large extent
unaffected by the constraints of EC competition rules.
7.
A foreign policy for the Union?
In foreign policy (and so we come to the heart of political Europe),
uncertainties and ambiguities prevail regarding the respective powers of
the Union and its member states. The treaty text appears to go in one
direction, and a declaration appended to the final act, in quite another.
THE SHAPE OF POST-LISBON EUROPE | 281
The treaty contains a number of significant innovations: the Union’s
international legal personality, the occasional resort to majority decision
and the creation of a figure entrusted with handling common foreign policy
as a whole. We have already referred to the latter. Whereas the
Constitutional Treaty spoke of a Minister for Foreign Affairs, the title is
now more modest: High Representative. Its terms of reference however
remain the same; they include submitting proposals to the Council on
Foreign Relations, presiding over it, implementing its decisions and
speaking on behalf of the Union before the United Nations. The High
Representative will be supported by an embryonic European diplomatic
service. All these measures are aimed at strengthening the ability of the
Union to develop its own foreign policy and speak abroad with a single
voice.
The appended declaration, however, contains a number of caveats in
defence of state prerogatives. According to the declaration, treaty
provisions do not affect the responsibilities and powers of individual
member states in shaping and handling their own foreign policy, do not
compromise their relations with other countries or international agencies,
do not hinder the tasks and roles of its diplomatic representations, do not
restrict the freedom of action of the holders of permanent seats on the
Security Council and do not confer any new Common Foreign and Security
Policy responsibilities on the Commission or the European Parliament.
The emerging picture is contradictory. Which should we give more
credence to: the treaty, which directs the Union to develop its own foreign
policy or the declaration, which makes this goal very difficult to achieve?
From a legal standpoint, declarations, unlike protocols, are not binding, but
they do carry political weight. In this case, there is a risk that the CFSP will
continue to be a separate pillar within the Union. A pillar that is rigorously
intergovernmental in nature requires the unanimous support of all member
states before any common initiative can be taken and leaves them freedom
of action to protect their national interests.
Hopefully the Union will succeed in asserting itself as a single entity
on the international stage. But uncertainties still exist and concerns are
justified. There is a danger that the Union will only be allowed to handle
minor issues, with high-profile foreign policy matters remaining the
absolute prerogative of member states (see Merlini in this volume).
282 | GIAN LUIGI TOSATO
8.
Two conflicting concepts
The examples of ambiguity and uncertainty described previously can
(almost) all be traced back to the two conflicting concepts that have marked
the process of European construction since the beginning: on the one hand
a political (and not just economic) entity, with federal connotations; on the
other, a confederal, intergovernmental institution mainly (though not
exclusively) entrusted with economic matters.
At times the first concept nearly prevailed: consider the Defence
Community in the 1950s, Spinelli’s parliamentary project in the 1980s and,
more recently, the Constitutional Treaty. But none of these initiatives
succeeded. On the other hand, the repeated attempts at giving Europe a
purely intergovernmental nature (the Luxembourg compromise, the
creation of the European Council, the second and third Maastricht pillars)
have also failed. Europe over time has maintained its ambiguity, setting it
apart from all existing models; it combines federal and confederal,
integration and cooperation, supranational and intergovernmental
elements.
Thanks to the many positive innovations introduced to the Nice texts,
the Lisbon Treaty certainly marks a new step on the way to “an ever closer
Union”. In this sense, Lisbon is in line with Maastricht, Amsterdam and
Nice. But as its predecessors also did, it leaves the Union’s finality unclear.
And pending the settlement of this basic issue, from which all others stem,
ambiguity and compromise will remain unavoidable, as clearly explained
by Giorgio Napolitano on 27 November 2007, in his Berlin lectio magistralis
(see Napolitano, 2007).
The reform process can therefore not be considered complete. It is no
coincidence that the European Parliament, while endorsing the new treaty,
immediately mentioned new amendment initiatives.5 More significant still
is the establishment of a group of wise men to reflect on the future of
Europe. A decision taken by the European Council, the very day the Treaty
of Lisbon was solemnly signed.6 According to the Heads of State and
Government, the wise men should not concern themselves with
institutional issues. But they can hardly address the major issues of the new
5
Resolution of the European Parliament of 11 July 2007, at point 21.
6
European Council of 14 December 2007, Presidency Conclusions, at points 8 to 13.
THE SHAPE OF POST-LISBON EUROPE | 283
century – sustainable development, the environment, energy, immigration,
combating terrorism and international crime – without reasoning in terms
of resources, structures and powers, in other words without considering
which instruments will be best suited to the implementation of the policies
required. Institutional issues appear unavoidable; and with them also the
need to “overcome the deadlock between conflicting concepts of the
European project” and “eliciting a new common political will”, as stressed
by President Napolitano in the lecture cited above.
9.
A look into the future
The contruction of Europe is thus not complete; but what tools will one
need to move ahead?
Over the last two decades we have seen a continuing process of
revision: the Single Act, followed by Maastricht, Amsterdam, Nice and
now, by Lisbon. A series of revision treaties that have marked the
successive stages of the integration process. The last stage proved
particularly lengthy and laborious, characterised by a resounding failure
(the rejection of the Constitutional Treaty) and the serious crisis that
ensued. One can thus easily predict that member countries will think twice
before embarking on a similar adventure again. Getting 27 members (or
even more, if there is further enlargement) to agree appears extremely
difficult; and, after all, the compromises and resources of diplomacy have
their limits. Europe has not reached its final destination, but its method for
solemnly revising the founding treaties may well have.
In the future, changes will more likely be made solely to the secondtier treaty, on the functioning of the Union. As mentioned earlier, such
revisions can be addressed through simplified procedures that bypass the
intergovernmental conference stage. But even the so-called ‘small revision’
will not have an easy time, as it requires the consent of all national
governments and parliaments (which was not the case with the ECSC).
Beyond formal revision procedures, instruments may over time be
perfected within the Union, through inter-institutional agreements or case
law. Inter-institutional agreements have in the past been used to introduce
quite significant innovations in legislative and budgetary procedures,
relations between institutions and the protection of basic rights. They may
be used again in the future. Although one should not underestimate the
fact that Council approval will be required, with the unanimous agreement
of governments this entails; and a further obstacle might stem from
284 | GIAN LUIGI TOSATO
national parliaments, following the recent Lisbon judgement of the German
Constitutional Court.
As for case law, it is superfluous to recall its driving force in the
integration process; and it is unthinkable that the evolving and creative
interpretation of European judges could be somehow blocked. The new
Treaty however establishes explicit barriers to the expansion of EU
competences via judicial decision: from the meticulous re-assertion of the
principle of conferral to the recurrent clarification that the legal personality
of the Union, the Charter of Fundamental Rights, support competences and
the residual competence under Article 308 in no way allow for new powers
to be conferred upon the Union. In fact, European judges themselves have
shown caution and restraint in recent times.
And then there is differentiated integration – already a fact within the
Union: consider Schengen, the euro or the defence policy. This
phenomenon has expanded in the new Treaty, as illustrated by the opt-outs
granted on issues of basic rights and in the area of justice and home affairs.
In any case, the key issue is clear to all and cannot be eluded. On the one
hand, some countries are not prepared to go for any further integration,
whereas on the other, matters requiring a European response are
increasingly pressing. It is therefore inevitable that if all do not feel ready,
initiatives will be taken by smaller groups, either through enhanced
cooperation within the Union (as in the euro approach), or through
agreements outside the Union legal system (the initial approach to
Schengen).7
Increasingly, differentiated integration appears to be an appropriate
way forward. The dissent of a few countries cannot be allowed to hold up
all the others. Europe therefore faces a future of unity and diversity, as
stated in the Constitutional Treaty. Admittedly, the two terms are difficult
to reconcile. The tasks and challenges ahead are therefore clear: Europe
must be allowed to move forward on a differentiated basis without
compromising its unitary construction and without losing sight of its
hopefully still common final goal.
7
On the euro model see Ciampi (2004).
THE SHAPE OF POST-LISBON EUROPE | 285
References
Amato, G. (2003), “Verso la Costituzione europea”, in Rivista italiana di
diritto pubblico comunitario, No. 2.
Cassese, S. (2002), La crisi dello Stato, Roma-Bari, Laterza.
Ciampi, C.A. (2004), Dall’Europa all’Euro dall’euro all’Europa, edited by F.
Galimberti, Roma, Treves Editore.
Napolitano, G. (2007), Sciogliere l’antico nodo di contrastanti visioni del progetto
europeo. Far emergere una nuova volontà politica comune, Lectio
Magistralis, Università Humboldt-Berlin, 27 November.
ABOUT THE AUTHORS
Stefano Micossi (co-editor), General Director of Assonime in Rome,
Professor of Economics at the College of Europe in Bruges and
Member of the Board of Directors of the Centre for European Policy
Studies in Brussels.
Gian Luigi Tosato (co-editor), Professor at University of Rome “La
Sapienza” and member of the Executive Committee of the Istituto
Affari Internazionali (IAI), Rome.
Carlo Bastasin, Columnist at Il Sole 24 ore.
Ginevra Bruzzone, Deputy Director General of Assonime in Rome.
Rocco A. Cangelosi, Director of the Office of Diplomatic Affairs of the
Italian Republic.
Sabino Cassese, Professor of Administrative Law at University of Rome
“La Sapienza” and Judge of Constitutional Court.
Mario P. Chiti, Professor of Administrative Law at University of Florence
and Chairman of the Italian Institute of Administrative Science.
Giacinto della Cananea, Professor of Administrative Law at the Faculty of
Political Science of University “Federico II” in Naples.
Maurizio Ferrera, Professor of Social Policy and Chairman of the Graduate
School in Social, Economic and Political Sciences at the State
University of Milan and Director of the Research Unit on European
Governance (URGE), Collegio Carlo Alberto di Moncalieri, Turin.
Fiorella Kostoris, Professor of Economics at the Department of Economics
of University of Rome “La Sapienza”.
Andrea Manzella, Director of Centro Studi Parlamentari at University
Luiss in Rome.
286 |
THE SHAPE OF POST-LISBON EUROPE | 287
Cesare Merlini, Deputy Executive Chairman of the Council for the United
States and Italy and President of the Board of Trustees of the Istituto
Affari Internazionali (IAI), Rome, of which he was previously
Director (from 1970 to 1978) and President (from 1979 to 2001).
Pier Carlo Padoan, Deputy Secretary-General of the OECD.
Alessandro Pansa, Joint Director-General of Finmeccanica and Professor at
Luiss University in Rome.
Luigi Prosperetti, Professor of Economic Policy at Faculty of Law,
Università degli Studi in Milan.
Stefano Sacchi, Assistant Professor of Political Science, University of Milan
and Acting Director, Unit on European Governance (URGE), Collegio
Carlo Alberto di Moncalieri, Turin.
Ferdinando Salleo, Secretary-General of Italian Ministry of Foreign Affairs
1994-1995 and Italian Ambassador in Moscow 1989-1993 and
Washington, 1995-2003.
Valeria Termini, Director of Scuola superiore della Pubblica
Amministrazione; Professor of Economic Policy; Chairman of the
Intergovernmental Committee for Energy and Environment of the
Presidency of Italian Council and Representative for Italy to the G8
and UNFCC on these issues.
