Address to the Oireachtas Joint Committee on European Affairs Tuesday, 16 July 2013. The piece posted below is my preliminary statement. The full transcript of the questions and answers session is available on the Oireachtas website.
I would like to thank you for the invitation to speak here today. I come in my professional capacity to represent the Foundation for European Progressive Studies, a think tank based in Brussels. I also happen to be a citizen of this Republic. Therefore, I take this opportunity very seriously and I hope to offer a perspective that will be useful to you in your work.
I will begin by addressing the “money matters” of economic, budgetary and fiscal coordination outlined in your invitation. I will then look at the political angle, bearing in mind how Ireland fits into the overall narrative. I will save commentary on the situation in the UK for the discussion afterwards.
Economic, budgetary and fiscal coordination
The invitation made direct reference to the European Semester process, a cycle of economic and fiscal policy coordination in existence since 2010. The objective of this is to ensure sound finances, foster growth and prevent macroeconomic imbalances. This all sounds fine in terms of multi-layered policy coordination.
However, even this immediately raises issues about legitimacy and accountability. I can only imagine the discomfort you all felt as parliamentarians when you found out that the German Bundestag had begun scrutinising the 2013 Budget before it became available to you. Despite the fact that the Oireachtas has similar access to the budgets of other member states, the perception persisted that a big player had coercive oversight in Irish affairs.
The maintenance of political legitimacy lies to a large degree in perception and it requires the modes of accountability to be crystal clear. Therefore, it is evident that any proposals for further budgetary coordination must take account of citizens’ views as well as the desired legislative outcome.
Many proposals for budgetary integration cite the potential for central authorities to veto certain national legislation, most likely linked to the rule that national deficits ought not exceed 3% of GDP. This would be enforced through the stick of financial sanctions and default mechanisms, and the carrot of debt mutualisation.
As such, when it comes to the use of such mechanisms as Eurobonds, national governments and parliaments need to decide: How much control are they actually willing to cede in order to attain a level of efficiency that has been so absent during the present crisis? The economic structures of our Union are intrinsically bound with sensitive political questions regarding the most legitimate level of coordination. As one would expect, there are radically different perspectives on where the lines should be drawn.
Decision-making on economic, budgetary and fiscal coordination requires the appropriate institutional mechanisms. At present, the ECB is very limited in its capacity to help the situation due to its focus on monetary stability. Monetary targets focus on inflation but the ECB needs real targets, with a focus on economic and social outcomes such as tackling unemployment. A more active ECB with the ability to issue bonds to cover for state debt would be a considerable help. Added to this, it could guarantee debt issued by private banks for specific categories of investment like graduate start-ups or retraining.
Stability is vitally important but it should be accompanied by a more ambitious strategy for full employment and an increase in demand. To achieve this, the ECB and EU require significant structural and institutional changes. In particular, it is time to make the ECB politically accountable, thereby removing its independent status.
The European Investment Bank is another facility whose lending scope could be widened. It has great potential to increase employment and aggregate demand through project bonds and targeted investment.
Many of the proposals for stronger political union require a larger EU budget. Inevitably this will bring conflict and further problems of coordination. It also raises questions about who is accountable, as it would possibly entail the creation of a sort of supranational finance ministry. The corresponding loss of fiscal control at national level might be a bridge too far in many of the member states. However, it is a debate that must be addressed, whatever the outcome.
Implications for Ireland
Before I move on, I would like to briefly address Ireland’s interaction with the Fiscal Compact Treaty. Given the government’s constrained position at the time, I understand why they supported a Yes vote in referendum, as to do otherwise would undermine their political position during negotiations in Brussels. Thus, a No vote would be specifically bad for Ireland in the short to medium term. But research conducted by FEPS at the time indicated that it could be damaging for us all in the long run
The central flaw to the treaty is that it narrowly constrains the capacity for national governments to use fiscal policy as a countercyclical mechanism during times of crisis. When we need to boost public investment, we don’t have the necessary tools. Such limits exist more broadly too. A small, open economy like Ireland can only do so much alone, but the limits placed by the treaty reduce the extent to which activities elsewhere in the Eurozone can help us too. The only justifications for the treaty are short term and political in nature.
Many suggestions for integrationist initiatives emanate from Brussels. The most noticeable proposal in media terms is the introduction of direct elections for the Commission President. This is a federalist dream, based in part on the example of the US. There is no question that the secrecy with which the President is chosen must end.
However, in a continent dominated by parliamentary systems, why not adhere to parliamentary principles in choosing such a position? This is the much more realistic alternative originally proposed by the PES in 2009. Now the main European parties have agreed to select top candidates and campaign with them in next year’s European Parliament elections. This will have a direct bearing on the outcome, thus adding democratic legitimacy and making the Commission directly accountable to the Parliament.
One occasionally hears proposals for transnational party lists, potentially picked in Brussels. Again this ignores the political context in individual states, including countries like Ireland who do not use list systems. At a fundamental level, transnational lists would have the effect of increasing the influence Brussels-based party officials at the expense of the legitimating factor of close proximity to the electors and internal party democracy.
Ultimately, many proposals from Brussels are often far removed from the realities of daily life elsewhere in Europe. Their aim is to deepen political integration, but the focus is mostly on political practitioners rather than the public at large. Furthermore, such proposals require very significant treaty changes for measures that are largely cosmetic.
Treaty change is a difficult subject in this country. Therefore, I always argue in Brussels that, if such changes are unavoidable, we have to make them count. Measures to enhance living standards across the Union are bound to have a more legitimating outcome than remote institutional daydreams. Some of the suggestions I made earlier would indeed require new treaties, especially those requiring institutional transformation, the removal of the deficit rules at EU level, or the focus on job creation included in an Employment and Stability Pact.
It is hugely important that the politicisation of Europe is evident at member state level. Across the EU, “Europe” is presented as a monolithic entity. One is either pro- or anti-EU, for or against further integration. It is not always readily apparent that there are diverse conceptions of what EU integration actually means. In the European Council, big questions are sidelined to accommodate the many national interests at play. Member states privilege narrow, short-term advantage over long-term planning. In all the noise we don’t get to ask what kind of European Union we want.
Legitimacy depends on being given a choice. Populist and extremist voices have grown louder as the politics of grand coalition and consensus have given way to charges of cosy elitism. This has a good deal to do with a more general legitimation crisis facing democratic institutions. There is a tacit acceptance of dysfunction, while citizens become ever more alienated. Within the member states, governments disguise dysfunction in vocabulary that is misleadingly “ethical”, exemplified by the presentation of austerity measures and welfare cuts as “hard choices”, while alternative perspectives are omitted from debate.
These are all political choices. Often national governments tend to disguise their political choices as impositions from the EU when it suits them, and this has damaged the credibility of the Union to a certain extent. The evolution of European political parties, to which most national parties are affiliated, has been one of the more significant efforts at offering genuinely European political choices.
How far should integration go?
The subsidiarity principle has been relatively successful as a legislative value. The idea that all legislation should be decided at its most appropriate level serves well the principle of a multi-layered democracy. Sadly, we live in a time where there is widespread cynicism towards every level of governance.
The gap between the inherently ethical nature of public decision-making and the utilitarian nature of present-day political debate has pushed a wedge between citizen and institution. The limited terms of political discourse bring with it the rejection of alternative paradigms and unconventional thought. Taken to the European level, the constraints imposed on fiscal policy by patently ideological positions in the treaties have put into law the idea that there are no alternatives. Is it any wonder that there is suspicion of further integration?
Personally, I am in favour of further integration, but only if it is on the appropriate political and economic terms. Citizens need to see their public institutions as symbols of power held in common – as guardians of the public good. There is a responsibility to offer a normative public vision, not an irrational bureaucracy, prone to unaccountable interference. This means adhering to the community method, giving an appropriate role to the European Parliament, and linking it to the national parliaments in a constructive relationship.
In conclusion, the FEPS perspective is that democratic legitimacy and accountability can be enhanced in a number of ways. In economic, budgetary and fiscal matters, our researchers advocate a politically accountable ECB and the use of the EIB as a means of stimulating investment in the real economy. Furthermore, the legislative scope of the EU should be expanded to include a focus of job creation.
Further political integration must be linked to the idea of improving citizens’ living standards. Otherwise it will be seen as a source of resentment. Therefore, the legislative framework of the EU needs a clear link to preferred social outcomes and union-wide solidarity.
I hope the presentation has been useful to you and I look forward to our discussion.