In These New Times

Euro Intelligence

19th May, 2012

French and Greek elections have revived the discussions about political instability in the Eurozone and its consequences for the Eurozone economy. In the last year, change of governments in France, Netherlands, Slovakia, Italy, Greece, Slovenia, Belgium, Portugal and Spain, through elections or internal political crises, and the upsurge of extremist parties risk to exacerbate an already fragile economic and financial situation. We are likely to see more government changes, especially if the political block against austerity measures is gaining political support across the Eurozone. The institutional set-up is such that the political decisions at the European level will be determined by a few key players while citizens will cast their protest votes at the national level. This mismatch will heighten the tensions and makes a call for a renewal of the institutional set-up in Europe inevitable.

Since 2002, the political and institutional set-up governing an economically and financially integrated area has remained unchanged. In contrast to this, economic and financial integration have advanced with the single market and the monetary union and de facto created a semi-federal state, whereby transfers among regions are indirect, through the implicit guarantee of surplus countries on the debt issuance of deficit countries. With the sovereign crisis, these guarantees have been withdrawn or put under review by internal government decisions, while sovereignty on monetary and (most) fiscal policies has been irreversibly transferred at Euro area and EU level.

Key decisions at European level, however, are political compromises and often are result of attempts to protect national interests. The current institutional set-up is clearly unable to build a long-term political direction, and citizens’ democratic control on key decisions is limited to the European Parliament, which elects the top brass of the European Commission originally nominated by national governments. The Parliament then interacts with the Council in drafting new legislations, which get finalised through an opaque legislative process and its informal ‘trialogue’ (called, ‘co-decision’), which makes lobbying activities very effective. Furthermore, very limited resources, vis-à-vis the sheer amount of forthcoming regulation proposed by the Commission post-crisis, makes the European Parliament scarcely effective in shaping the underlying structure of regulations and amendments are often a pure ‘lifting’ exercise. The independence of the European Commission then is regularly put under strain by intrusions of national governments through Commissioners’ cabinets and less regularly by MEPs. At the third corner of this triangle, the Council has been designed to represent national governments and protect what they perceive as national interest,with scarce control of national parliaments over these decisions. As a result, this institutional set-up, is therefore (deliberately?) unable to take long-term political decisions) for a Euro area, especially in time of crisis.
Long-term effects of the move towards a more federal state have been clearly underestimated by Euro area members. The move, has left an empty space in the programme of national parties and politicians. Member states and their debts are transformed into regional areas with important competences, such as national security and health care, but all subject to a budget that gets now formally approved in Brussels. National political establishments have lost important pieces of their political projects (as part now of Europe-wide decisions), giving space to narrow-minded national political ideas led by extremist parties. We now live with the paradox that the European Commission, led by technocrats, exercises strong influence on long-term political decisions, while national political establishments have to deal with implementing rules and explaining to citizens projects inspired by this supranational setting.

The unstable economic and political situation compels us to take a bolder action: we need to move move the EU technocrats’ work to the national level promote a greater democratic participation to new EU institutions in order to build a European political class, otherwise  the current institutional set-up designed to protect national interests will bring ultimately the Euro area and with it the single market down. From a Eurozone level the economic decisions that need to be taken are more or less straightforward, and include a liquidity firewall and Eurobonds. But  the institutional set-up and the political uncertainty in the member states condemns us to continued economic uncertainty.

The call for a new European convention to reform European and Euro area institutions would be a courageous political decision today, and would give back to politics its role as leading guide for institutional reforms to cope with fundamental societal changes. It is in time of crisis that the political will to carry out fundamental changes to our institutions builds up and could  generate a broader interest to renew the idea of Europe.