EU Decision-making: Going the Wrong Way About It

 

January 31, 2012

We’re heading towards a Soviet-style union run by a Politburo made up of national political leaders uninterested in consulting the European Parliament on important decisions affecting our lives.

Whilst in Brussels where the EU heads of government were busily hammering out measures aimed at solving the euro-crisis, Martin Schulz held his first speech as President of the European Parliament. He rightfully incriminated the cumbersome and un-democratic way EU political leaders make decisions bearing on the future of Europe’s almost half a billion citizens. To be sure, the EU is not a fully functioning union yet and the fiscal arrangements concluded on January 30th only serve to reinforce this.

As Martin Schulz has complained, the European Parliament is rarely consulted before a vital, Europe-wide decision is made. Indeed, it seems national leaders act as a veritable Soviet-style Politburo. The German chancellor, like Russia’s leaders had within the Soviet federation, is increasingly able to railroad the other national leaders into agreeing to policies that will ultimately bring about… the unravelling of this union, as well. We have been used to comparing Germany to the other exporting powerhouse, China. So why compare it to Russia now? To their credit, the Chinese are pouring tens of billions of dollars into infrastructure projects within their ASEAN neighbourhood every year, sometimes without even being asked. Moreover, they are buying hundreds of billions of dollars worth of US treasury bonds, only to keep their business partner afloat and able to buy Chinese goods. Would anyone see the Germans doing likewise ? Not unless they really had to, and then on condition they get to take over the fiscal management of the country in need of assistance.

Look no further than the adoption of the so-called «golden rule», as a panacea for solving the sovereign debt crisis and so much more (!). Unfortunately, however, most of the countries that were forced to adopt austerity measures aimed at balancing their budgets have been beset by huge social turmoil, du jamais-vu in post-war Europe. To the current leaders who met in Brussels on Monday, warnings constantly issued by Nobel prize laureates like Joseph Stiglitz or leading economists like Martin Feldstein seem to matter little, if at all. If the trend continues, I sincerely wonder who is going to be left with enough funds to buy German cars and German machine tools around here… As Christine Lagarde has courteously reminded her German hosts recently, for every surplus country like Germany, there have to be a number of deficit countries left, in order to absorb its exports. There’s simply no other way about it. This is why the «golden rule» can only have a boomerang effect on the German economy, but to people affected by political myopia, that, of course, is no valid reason to desist.

And what if the European Parliament, since the spring of 2011, was in favour of the introduction of eurobonds? Nobody has invited its representatives to have a say at the summits where such decisions are taken. Let’s face it: for complex issues, inter-governmentalism as a decision-making mechanism has proven highly detrimental to the running of the Union’s affairs. More often than not, the Commission and the European Parliament look on as powerless spectators of the ongoing series of policy blunders which, instead of solving the crisis, aggravate it.

Whilst national governments are being constrained to stop much-needed investments in infrastructure and other projects, the European Commission is supposed to pick up the slack and spend some 82 billion euros on regional projects in order to kickstart growth. Now, if anyone believes that this sum is going to make a significant dent in the continent’s unemployment, good luck to them. Sure, as Martin Schulz has observed, the adoption of a 0.05% financial transactions tax would bolster the EU’s budget by 200 billion euros per year, but who listens to Euro-parliamentarians ? As in the illustrious Soviet example, apparently nobody…

Author : Spotlight on Geopolitics
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External Relations  , E.U., euro

The US' Strategic Defence Review Assessed

 January 28, 2012

The Defense Strategic Review (DSR) released by the Pentagon on the 5th of January 2012 summarises the Obama Administration’s geopolitical agenda and strategic priorities. From it, experts can discern which country is considered the new enemy of the USA, although President Obama’s speech on the occasion does not mention China by name.

In France, the refocusing of the US strategy on the Asia-Pacific region is viewed by Professor Jean-Jacques Roche from ISAD as a positive development. Whilst he observes that some of the new EU members (countries like Poland, the Czech Republic and even Romania) might express their misgivings about the planned US troops withdrawal , Western suppliers of military hardware should supposedly rejoice. Professor Roche believes that the Pentagon’s DSR could kick-start the accelerated development of the European Defence Agency (EDA) and increase the mutualisation of the defence capabilities of the EU’s member countries.

The two reasons given by the US for the elaboration of the new military doctrine are the changed geopolitical environment and the radically different fiscal circumstances. In other words, the adoption of the new strategy is supposed to save the US some $450 billion over ten years, fiscal consolidation being nowadays regarded by Washington as a national security imperative…

We can also gauge from the document who the US’ current friends and enemies are. Unfortunately, China is identified as a potential foe, in the same paragraph with Iran. In the Middle East, America’s friends and allies are the Gulf countries and Israel. In Asia, India, South Korea, Taiwan and Japan are the allies supposed to offer the US the means of putting in place – if needed – a balance of power mechanism against China. This time around, the US needs Russia on its side, especially in the wake of the upheavals in the Middle East – hence the reset.

Interestingly enough, the Indians are advised by their own experts to refuse bandwagoning on the issue. Thus R.S. Kalha, an ex-Secretary of the Indian Ministry of Foreign Affairs, notes that in the past the US had forced India to settle on Kashmir. He rightly observes that South-East Asian nations are loath to become close allies of either China or the United States, for such an option could prove disastrous for them. R.S. Kalha believes that the Indian leadership should be prudent on the matter, as a clear-cut alliance with the US might prove detrimental to Indian interests. He knows that the nature of the US – China relationship is very complex and that a military conflict between the two giants seems highly unlikely, as long as China needs the American export markets and the US needs China to continue to buy its T-bills. To be sure, the relationship between the two powers is deeper and more complex than the one established by Washington with its Soviet counterpart during the Cold War.

The reception of the Pentagon’s DSR by the Chinese government was a rather cool one. The Chinese leadership seems unwilling to intensify confrontation and to become a new cold war target for Washington. The People’s Daily has insisted that China should continue with its economic development and avoid being dragged into a military competition with the US, as the Russians had. Still, the Chinese intend to continue to take care of what they call their ‘peripheral security interests’, in spite of the new assertiveness of the new US defence policy in Asia. For all other issues, the Chinese apparently intend to cooperate with the US in solving potential tensions via dialogue. (sources: Le Monde, Pentagon Paper, People’s Daily, IDSA India)

Towards a two-union Europe ?

 January 15, 2012

Standard & Poor’s decision this week to downgrade the country ratings of France, Italy, Spain and Portugal, not only aggravates the sovereign debt crisis, but it actually divides the EU in two.

The most affected group is made up of the Latin countries bordering the Mediterranean. Their interest bills are going to rise to levels that, in some cases, will make it prohibitive to finance their budget deficits and therefore to continue to provide quality public goods and services to citizens. To make matters worse, this group of countries has to swallow the bitter German pill of budget austerity at a time when long-term economic recession and possibly even stagflation look increasingly likely.

The second group of countries, headed by Germany, has kept their AAA credit rating. It includes Denmark, Sweden, the Netherlands and the UK, for example. Switzerland and Norway also belong to this group, although they are as yet unaffiliated to the EU. The main preoccupation of Germany and its like-minded northern European partners is fighting inflation, not unemployment. This is in sharp contrast with the economic philosophy of the Latin group of countries, which are quite tolerant of higher levels of inflation and budget deficits, provided these are used to significantly bring down unemployment.

Whilst a two-speed Europe might not be in the cards, in a not too distant future we might be faced with the prospect of two separate European unions, built out of the ashes of the current one. Thus, as Angela Merkel herself threatened in 2008, the Germans might be more interested in building a Baltic union, which could conceivably attract Russia as an associate, whereas the Latin countries might wish to explore further a separate Union for the Mediterranean that could potentially integrate Tunisia, Morocco, Libya and Algeria.

As far-fetched as this sounds, such an outcome might, however, prove to be the only solution to having a too-large and dysfunctional union, in which national interests prevail at the expense of the greater good of all existing members. In truth, the provisions of the Maastricht Treaty, the austerity packages and the German insistence on having an European Central Bank solely dedicated to fighting inflation do not work in practice for a majority of EU members, and especially for the first group of countries mentioned above. At this point in time, all good ideas aimed at solving the EU’s woes — such as fiscal union, the emission of eurobonds, a central bank dedicated to fostering employment, a common defence and security policy that works — have been discarded by Germany and some of its closest allies. In these conditions, no expert or responsible politician could be blamed if alternatives to the current union arrangements are actively being considered by them.

Two-speed Europe

 October 31, 2011

The decisions agreed upon by EU leaders during the 26th of October summit – the leveraging of EFSP, the “voluntary” 50 percent reduction of Greece’s debt, improved coordination of fiscal policies within the eurozone countries, the appointment of a super-commissioner with fiscal oversight responsibilities – have all been judged as steps in the right direction by the financial community. Stock markets have reacted positively and so have a few major rating agencies.

Less enchanted with the outcome are, however, the leaders of the ten EU countries which are not currently part of the eurozone. As a result, the summit was the scene of harsh verbal exchanges between David Cameron and the French president, for example, but tensions were equally evident among the Swedish and Romanian delegations.

The non-members of the eurozone feel that the Union is heading towards a two-speed Europe. In other words, its core is made up by the 17 eurozone member countries, headed by Germany and France, whilst the rest are relegated to the periphery, geographically as well as economically. The UK’s chief concern, as the leading financial centre of the Union, is the insistence of eurozone member countries on introducing a financial services tax which could cripple the activity of the City of London. Romania, on the other hand, has expressed reservations about the measure to recapitalise EU banks with large exposure to the Greek, Italian or Spanish debts. As most of its banks are foreign-owned, that might lead to a drastic reduction in lending to local companies. All the other leaders feel already excluded from the important decision-making process, which will take place in the first instance within the euro-club and only afterwards discussed with the rest of the EU’s political representatives.

The emergence of the two-speed Europe could have been avoided by the northern kingdoms if they had agreed to join the eurozone from day one. At the time, countries like the UK and Sweden, for example, sported healthy finances and a fiscal discipline which were in accordance with the criteria established at Maastricht. All is not lost, however. Membership of the eurozone is still open to them in the future, if only they could overcome their reluctance to join. The newer EU members, such as the Czech Republic, Poland, Romania and even Bulgaria are all making strenuous efforts to reduce their budget deficits, improve tax collection and prepare their economies for becoming full members of the eurozone in the years to come.

Viewed in this light, the existence of a eurozone core that could act as a catalyst for change upon the “periphery” is not altogether as negative a development as some EU political leaders wish to present it to their electorates. (sources: Der Spiegel, Reuters, Le Monde, The Economist, The Guardian)

The EU's crisis-busting projects

 October 23, 2011

On the 19th of October, the European Commission has announced in a press release that it will invest 31.7 billion euros into the transport infrastructure of member countries in need. Until now, as the document states, rail and road networks have been developed within the EU on a national basis. Opportunities for interconnectivity have thus been lost and that has severely restricted the free flow of goods and people across the continent.

Mediterranean countries such as Spain,for example, stand to benefit most from such investments. According to La Vanguardia, a rail link along the coast from the Franco-Spanish border to Algeciras in the south will finally be built in the next few years, at a cost of some 19 billion euros. The railway will bypass Madrid altogether. This development is also in line with the measures advocated in a recent Project Syndicate op-ed (“Mediterranean Reborn”) by Javier Solana. According to him, the building of new rail links connecting southern Europe with the centre of the continent will reduce costs as well as pollution levels and help rebalance the current trade flows from the Pacific region to Europe. Since northern European countries have far better-equipped harbour and rail networks than the south, merchandise from the Far East or India that comes via the Suez Canal into the Mediterranean currently bypasses ports like Venice, Marseilles or Barcelona in favour of Amsterdam, Rotterdam or Hamburg, even though the trip is three days longer.

The Commission will allocate money for the upgrading and linking of oil and gas pipelines, as well, in an effort to streamline energy distribution across the continent.

Taken together, these projects have the potential of creating tens of thousands of low-level jobs across southern Europe, at a time when unemployment in Spain, for example, has reached alarming levels. (sources: Presseurop, European Commission press release, La Vanguardia, Project Syndicate).

Will the EU Outlast the Euro Crisis ?

 October 13, 2011

According to the laws of aerodynamics, the honey bee is too heavy and its wing shape cannot support it in the air. This, nevertheless, does not prevent it from flying and tirelessly collecting pollen every day, which is the essential raw ingredient in the production of honey.

The sovereign debt crisis has provided fodder to critics of the EU’s institutional arrangements, at home or abroad. According to them, the European project is about to implode. Why, George Soros even compared the situation to that of the defunct Soviet Union ! The euro is described as “the most dangerous currency in the world”(Der Spiegel), the lack of a central government in Brussels is given as a liability, the EU’s soft power approach to foreign policy is being dismissed as less than impressive. From Joschka Fischer to the parties of the Left, many believe that the moment has come to rebuild the Union into a federal superstate, with a central government, a treasury and uniform taxation laws. This overhaul from the ground up of the EU is supposed to solve, almost overnight, all the problems confronting member countries, regardless of gaps between their different levels of economic performance, productivity, labour laws or even attachment to common European values.

I have no way of knowing how many of my fellow commentators have paid 1,700 pounds sterling from their own pocket – as I have in 1997 – to attend international conferences on the monetary union, back when the euro was still a project. As the owner of a small FMCG import business based in Romania, I had considered it my duty to be among the first to learn what the project entailed. Naturally, I would have been happy to be able to use a single currency in order to reduce my transaction fees on every load of goods imported from the UK, and wrote so in a position paper I spread in London among the participants at the conference. During lunch, I was seated at the same table with Russian bankers and an Italian central banker. At the time, I routinely assumed that the Italians, like myself, were interested in learning more about the common currency project as observers, without however hoping to join it as members…

In 1997, I believed that the euro would include initially only EU members with solid finances, high productivity and strong economic performance. Alas, kingdoms like Denmark, Sweden or the UK refused to become part of it. Instead, who would have thought at the time that Mediterranean countries like Greece, Portugal, Spain or Italy would be included in the first wave ? This should have happened, in my view, a decade or two later, only after the euro had been tested by international markets and after southern countries would have significantly improved their economic performance, in a bid to qualify for membership. The fact that the euro’s introduction happened the way it did lends credibility to the theories according to which the planners knew about the flaws, but hoped to use an eventual future crisis to align the EU to the US federal model. Whilst by 1997 the need for another solid reserve currency was more than evident, it made little sense, if any, to draw so many EU members into the project at once, as it has now become clear to all.

And yet, the solutions to the current crisis – be it the shrinking of the euro or even the dismantling of the common currency area – would not, in my view, irreversibly damage the European Union. The proverbial prosperity and stability the continent enjoyed for the past sixty years would not be shattered because the planners went the wrong way about the euro. Both China and the United States, as well as Japan – not to mention weaker EU member states and surrounding neighbours – have become reliant to a high degree on the world’s equivalent of the honey bee, our very own EU. As much as we like to criticise it, or on occasion dismiss it as a cumbersome non-state actor, the European Union is here to stay, even if – and probably just because – it is not simply a version of American-type federalism on the European continent.

Author : Spotlight on Geopolitics
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E.U., Economy & Euro  , E.U., economics, euro

"The Real Global Economy is Intact"

 October 9, 2011

In an unprecedented development, on the 8th of October the three most important business associations in Europe – the French MEDEF, the German BDI and the Italian Confindustria – have launched a joint appeal calling for a deepening of political and economic integration among EU member countries.

The business leaders signing the appeal are thus taking the lead for further EU integration from politicians- the traditional promoters of European unity up until now. In a desire to restore economic growth within the Union, the authors of the appeal consider that a new EU treaty should replace the current one. The work on the new treaty should start in parallel with current efforts to replace the European financial stability facility (EFSF) by 2013. It should provide for further political and fiscal integration, with a view to improve stability and growth, as envisaged by the Maastricht Treaty. The aim of the proposal is to render the EU economically prosperous and politically strong, by improving the performance of all member countries.

The new permanent mechanism due to replace the EFSF by 2013 should, in the authors’ view, be an independent institution capable of assisting EU countries, subject to strict conditions. The competitiveness of EU economies would be improved by a thorough process of economic reforms, avoiding the piecemeal approach that has been the norm so far in countries from southern Europe.

By pointing out that the real world economy is actually intact, the business leaders are convinced that there is no reason to let it slide into another bout of recession, or worse, if only corrective action is taken by politicians in a timely and resolute fashion. Judging by the fact that unemployment in Germany dropped to 6,5 %, the lowest level since reunification, they might have a point (source: Reuters France).