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The EU Crisis and European democracy, the role of the European Parliament for an effective European government of the economy

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European Federalists

By Guido Montani, Vice-President of the Union of European Federalists

The European Monetary Union is in danger and, since the EMU is the most important achievement of sixty years of European integration, this means that the survival of the European Union itself is also at stake. The cause is not simply the Greek crisis but also the inadequate governance of the EU itself.

For example, in order to save the Greek economy from defaulting on its debts George Papandreu first planned to visit not the President of the European Commission but Mrs Merkel, Mr Sarkozy and Mr Obama. So who, under the present system, is actually responsible for the future of the EU?

The intergovernmental method of managing the European affairs confuses and mingles national and European interests. National governments cannot do without Europe, but they are also obliged to defend their own national interests. The result is a decision-making process which is slow, contradictory and inefficient. The proposal to expel Greece from the EMU opened the door to financial speculation against the euro and the possibility of an eventual legitimization of a split in the Monetary Union. Moreover, the decision to involve the IMF in the rescue package of 750 billion euro was a tacit admission of the euro’s weakness as compared to the dollar. The US Government has never asked the IMF for help when any of the 50 states of the Union risked being in default, as happened with New York in 1975 and today with California. The EMU’s survival is a purely European problem. No-one will save the euro so long as Europeans remain unable, or unwilling, to change their inefficient decision-making system.

Germany’s insistence on greater budget austerity in EU member states is correct. But it is only one side of the coin. The other side is the growth of the European economy. Too much austerity can kill the patient. After a dramatic economic downturn, the likely outcome would be a deflationary vicious circle with lower public expenditure, lower purchasing power, lasting stagnation, etc. The future of the European Union cannot simply be “l’Europe des patries” with strong ‘virtuous’ states able to face the challenges of the global economy, and weak ‘guilty’ states lagging behind. The Lisbon Treaty states that the Union “shall promote economic, social and territorial cohesion, and solidarity among member states” (art. 3). The present European Union is unable to attain these aims because it is not endowed with the necessary means for the effective governance of the European economy and, in particular, a suitable budget.

In Maastricht, December 1991, the heads of state and government decided to create a Monetary Union but did almost nothing to establish an Economic Union. The Delors’ Commission in 1993 launched an ambitious long term Plan for growth and employment, but the Ecofin refused to issue the required Union Bonds. The Lisbon Strategy, launched in 2000, was a complete failure because it was founded on the illusion that cooperation among 27 national governments could happen spontaneously. The European Commission was not seen as a potential government of the economy but merely as the secretariat of the Council. If the new Commission’s plan “2020” will not be financed by appropriate means, it is easy to forecast a new failure.

The time has now come to complete the EMU by establishing a fully-fledged Economic Union. Two parallel processes of reform of the EU institutions are on the table today: reform of the Growth and Stability Pact and reform of the Community budget. These two reforms are to be merged because the EMU can work only if supported by a fiscal union within which it is possible to decide how much to allocate to purely European projects (i.e. European public goods) and how much to national projects (i.e. national public goods). The global economic crisis has greatly worsened the state of European public finance. Taxpayers will be compelled to face new sacrifices for years ahead. The voice of the European citizens and their representatives cannot therefore be ignored.

We need a fresh pact between the citizens of the EU, from Germany to Greece, from Finland to Portugal, setting out the principles of a new fiscal responsibility and solidarity. To achieve this historic agreement, national parliaments should be involved in the reform process, along with the European Parliament, the European Commission and the national governments. The European Parliament – which defined the EU as a supranational democracy – should therefore promote an Inter-Parliamentary Conference (on the model of the “Assises”, convened in Rome in 1990) in order to exploit all the possibilities of the Lisbon Treaty and to propose the rules for an effective European Government of the Economy.

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