David M. Garcia is a Policy and Advocacy Officer at the Union of European Federalists, where he is responsible for the field of Constitutional Affairs and Governance of the EU. He is a graduate from the College of Europe in international relations and from the Global institute of Geneva in European economy and politics. Before coming to Brussels he was the assistant of the Council of Europe’s Permanent Observer to the United Nations in Geneva. This is a summary of the findings of the first contribution that the Secretariat of the Union of European Federalists has prepared for the EP report “Improving the functioning of the European Union building on the potential of the Treaty of Lisbon” that MEPs Elmar Brok and Mercedes Bresso are writing for the AFCO Committee. The entire Policy Brief titled “Strengthening and deepening the Economic and Monetary Union within the current Treaties: possibilities and Limits (25 Proposals)” can be found on the website of the UEF.
The scope of this study consisted of identifying the possibilities and the limits to the improvement of the governance of the EMU without changing the current Treaties. Although every day it is clearer and clearer that the current Treaties do not offer a suitable legal basis for the government of the Economic and Monetary Union (EMU), dissatisfaction among European citizens raises fears that any treaty ratification would face a negative answer. Because of this, the European Union needs to carry out some “proactive muddling through”, that’s to say, be inventive in order to exploit all the possibilities offered by the Treaties in order to show to its citizens that there is much to gain from a deeper euro area, and a lot to lose in dismantling it.
The starting point of this reflection is the failure of the rule-based approach provided for by the Treaty of Maastricth in order to face the the crisis. This failure had two dimensions. On the one hand, the EMU has failed to provide the positive outcomes that had legitimised it during its first 10 years of existence. On the other hand, the crisis made obvious that the EMU could not be governed only through the application of strict rules (the Stability and Growth Pact). Political decisions were necessary, although no institutional framework was provided for decision making in economic matters. This has led to a patchwork of solutions combining intergovernmental and “community” instruments and to an abnormal increase in the powers of the European Council.
Therefore, a movement to a governance framework based on genuine political decision making at the European level regarding economic policy is necessary, which requires an increase in political accountability to the European Parliament and a reinforcement of the ways for this institution to give input in the conduct of the EMU policies.
In the current situation, the exercise of executive powers is artificially divided between the Council (or European Council) and the Commission, which prevents any parliament (European or national) to exercise their right of censure on EMU policies. One essential step to rebalance the European democratic system would consist of concentrating the executive powers in key EU positions. The intergovernmental dimensions should be concentrated in a reinforced Eurogroup presidency, while the community competences should be clearly assigned to the VP of the Commission.
However, this would not solve the problem of political responsibility completely, since the intergovernmental and community dimensions of the EMU are impossible to disentangle in practice. The only way to engage the political responsibility with regards to EMU policies would require to merge those two positions to create a de facto EMU Finance Minister. Although eventually this solution would require Treaty change, it could be implemented for the time of one or two Commission terms through an interinstitutional agreement.
The second important feature of the EMU is its financial autonomy. No political responsibility could be held against EMU leaders if the final implementation of EMU policies depended on the will of Member States to finance them. Thus, the creation of a permanent EMU Budget is an essential step for the right functioning of the euro area. There are two broad possibilities to create this budget:
The first would be within the EU budget, through earmarked resources or through an enhanced cooperation scheme. This option would perfectly respect the institutional framework of the Union, and that’s why it is the option preferred by the Institutions. However, it would present serious limits, like the fact that its funding would be submitted to the ceilings of the Multiannual Financial Framework. In addition, the cumbersome decision-making procedures of the MFF would apply to it and non-euro countries would have a right of veto on the EMU budget.
So, it would be more appropriate to look further for a more adapted option outside the EU budget. There exist already two intergovernmental budgets used to finance European policies: the European Development Fund and the European Stability Mechanism. The ECJ has extensive case law on those budgets, which show that Member States can decide to integrate intergovernmental funds into the EU Institutional framework, thus giving the same powers to the Institutions as they have for the general EU Budget. In addition, the great advantage is that it could be decided to apply the Ordinary Legislative Procedure for its Multiannual Financial Framework or to create a simplified procedure for its Own Resources Decision. Another advantage is that this budget could finance both the decisions belonging to the intergovernmental and community dimensions of the EMU. However, the greatest drawback of this option is that this great flexibility could backfire, because we are not sure that all Member States would accept to give such a power to the EU institutions.
Another important dimension of the EMU is the policies that could be conducted in its framework. The EMU already has a policy for surveillance of budgetary policies, the European Semester, which could be improved to reflect the “normal” way legislative and executive powers are exercised in the EU (through a reform to give more control powers to the Parliament, possibly through Delegated Acts). However, the preventive and corrective arms of the EMU allow only for coordination once a breach to EMU rules is found, leaving the EMU short of means to implement a real economic strategy.
Therefore, a “proactive” arm for the EMU constitutes an indispensable addition to provide the European economic policy with the necessary means to produce a real value added. This would adopt the form of a Macroeconomic Convergence Strategy, i.e. an economic roadmap scheduled in the short (one year) and long terms for the EMU which would aim to exploit potential positive spill-overs between euro countries.
However, in the current state of the Treaties this policy could have a limited scope. On the one hand, there are no binding instruments that could make the commitments of the Member States enforceable as long as they have not breached the Stability and Growth Pact. So, it could only work on a voluntary basis. So, the more incentives the EU can give for its implementation, the better this policy would work, which makes the necessity of an EMU budget even more obvious. Finally, this policy would also require the coordination and harmonisation of key fields of the economic policies of the Member States (pensions, labour law, taxes), but this would be seriously limited by the fact that the Treaties preclude the harmonisation of social policies.
In conclusion, significant improvements of the EMU governance can be achieved without changing the Treaties, particularly in the clear assignment of political responsibilities, the involvement of the Parliament and the financial autonomy of the EMU. However, legal deadlocks like the preclusion of the harmonisation of social policies, the inexistence of binding instruments for a proactive economic policy or the fact that the EU cannot collect taxes, would require Treaty change for the transformation of the euro area into a Union of the Euro.