The election in Germany, even if disappointing for the current coalition, allows the most respected European leader to remain Chancellor. She can continue to steer the European engine, with a new French counterpart, impatient to test his European agenda – as outlined in a speech in the Sorbonne on September 26.
Is this the light at the end of a long tunnel? The end of the somber decade which started with the financial crisis, then the crisis of the Eurozone, the mass migration of 2014/15, the referendum on Brexit in June 2016, and the unexpected result of the American election?
At the beginning of this year, electoral campaigns in Austria, the Netherlands and France as well as the political debate in Italy gave populist eurosceptic parties center stage, and many across the EU believed they might win a majority of the vote.
But they failed. Everywhere. Brexit, far from being divisive, brought the 27 closer together. President Trump’s unilateral moves boosted security and defense plans at the European level. In France, Emmanuel Macron was elected with an ambitious European agenda. Unexpected economic growth all over the continent (except in the UK) reinforces a return to self-confidence.
A Return to Euro optimism?
As European Commission President Jean Claude Juncker noted in his “State of the Union” address on September 13, “the wind is back in the EU’s sails”. And as always when the Union comes out of a crisis, new steps are now being envisaged in the EU’s integration process.
This does not mean that spectacular changes will come soon. The framework will remain the current treaties. The fundamental problem of the distance between the institutions and the citizens remains, as well as the fear of globalization they are accused of encouraging. But many weaknesses – shortcomings that preexisted the crisis or were brought to light by it – can now be dealt with.
This blog explores briefly the various fields in which this new “Euro-optimism” will be tested. Not surprisingly, the debate will continue to oppose, on the one hand, those who favor more cohesion and solidarity, and so want to reinforce the role of the Commission or facilitate decision making; and on the other, those who want governance to remain as much as possible in the hands of national governments.
The influence of the latter, which has prevented progress over the last ten years, might be reduced now that populist and nationalist voices have been (temporarily) silenced – though of course we shall have to see the outcome of Italian elections next year. However, some strong mistrust remains, notably between the “old” and “new” Member States, as well as between the North and the South. The return to economic growth should help mitigate these divergences.
The governance of the Monetary Union and the Eurozone
Most economists agree that the Eurozone needs further reform. A roadmap for reform has been articulated since 2011 by the presidents of the EU institutions. But, apart from the setting up of a “Banking Union”, the other elements of the reform were never really discussed, due to the diverging views between Germany and most other Member States over financial “solidarity”.
But these ideas continued to float in the air, and were revived recently by the President of the Commission and the French President.
Even on the campaign trail, Macron espoused the creation of a separate Eurozone budget. He now suggests that this could be funded through (harmonized) corporate taxes, and managed by a “Eurozone Finance Minister”. He has also mooted the creation of a Eurozone Parliament.
Juncker, less enthused with the concept of “double speed” Europe, is opposed to specific institutions for the Eurozone, since all Member States (except Denmark … and the UK) will one day have to join. He supports the creation of an “EU Minister of the Economy and Finance” but who would be “double-hatted” with the commissioner in charge of the Economic and Monetary Union (“EMU”). He agrees with a special budget line for the Eurozone, but within the overall EU budget. The Commission will make proposals in December on this and on the transformation of the European Stability Mechanism (“ESM”) to a sort of IMF at the EU level.
But Germany will have the last word: Berlin needs first to approve the European Deposit Insurance Scheme, the last leg of the Banking Union. Angela Merkel has agreed in principle the idea of a Finance Minister, or at least a “full time” president of the Eurogroup, as well as a “small” Eurozone budget. Ex- finance minister Schäuble supported the idea of having the ESM transformed into a European IMF, but in his mind it should be in charge of the control of budget discipline, which is for the moment in the hands of the Commission.
The final agreement, at least in the near future, will probably be close to what is suggested by the president of the Commission, if the Free Democrats do not impose a too restrictive line on the new German government.
There is a strong popular move in Europe to limit the ability of multinationals to use perceived tax havens, and the differences among corporate tax regimes among EU members.
However, according to the EU treaties, all decisions on tax policy of the EU level have to be made by unanimous vote. As a consequence, it took years to convince Luxemburg and Austria to accept the automatic exchange of information between tax authorities. The financial transaction tax, vetoed by a number of countries, is now under discussion in an “enhanced cooperation” between eleven countries, but no decision has yet been made after six years of talks.
Taxing tech companies on the basis of their sales in each country and not where they are established, or harmonizing corporate tax rates, as proposed by president Macron, have little chance of being approved in this way. Indeed, in reaction to Macron’s speech, Luxemburg’s prime minister suggested that the issue be dealt with at the level of the OECD.
So the question for proponents of further EU action on tax policy is: has the time come to harness the disgruntlement of public opinion over tax policy to force through a measure of tax harmonization at the EU level? President Juncker, for example, has proposed using a provision in the Lisbon treaties that allows the European Council to authorize the Council to act by qualified majority on matters for which the Treaties otherwise provide that an act is to be adopted unanimously. This formula has never been used, but it may be the only way for an EU level tax policy to develop.
The Europeanization of Migration Policy
Asylum policy is at the core of national sovereignty but the creation of the Schengen area, with no control of citizens crossing internal borders, has imposed the development of a common policy, at least among the members of the area. So, step by step, the treaties started to include migration among the issues dealt with by the EU.
But resistance remains strong. When migrants started to enter the EU en masse in 2015, president Juncker thought that the time had come for the Commission to act: he suggested that, once given asylum, migrants be spread among all Member States through a system of quotas. This proposal caused an immediate and angry reaction from the Central and Eastern European Member States – even though some of them, like Hungary, had been confronted with massive arrivals at their border. A decision was made, a few months later, by majority voting, but it was only very partially implemented.
Since then, the common action at EU level has been developed with caution, and efforts are now rather centered on the protection of external borders (by European border guards), readmission agreements with the countries of origin (supported by specific EU financial assistance), and action against people traffickers.
A revision of the Dublin agreement, or a common screening of asylum seekers in special centers and in the country of origin, is currently under discussion. Macron alluded to this approach. But it suffers from the mistrust of the central and Eastern European Member States. Progress in this field can only be made alongside other efforts aimed at cohesion.
Security and Defense Policy at the EU Level
“A Europe that protects” was the slogan accompanying the first efforts of the 27 to display their unity after Brexit at a special meeting in Bratislava a year ago, in September 2016.
Numerous efforts have been made to develop common action relating to counterterrorism. President Macron’s suggestion to create a “European Intelligence Academy” would make more visible and systematic this cooperation – which has improved after the terrorist attacks of the last years, but could be made more efficient yet.
It is probable that the UK will continue to be associated with action in the field of security after Brexit. Indeed, British Prime Minister Theresa May has already mentioned the UK’s willingness to conclude an agreement with the EU on security and defense after Brexit.
If the withdrawal of the UK will substantially reduce the defense capabilities of the EU, paradoxically, it may enable the remaining Member States to develop defense programs in the framework of the EU, which used to be blocked by the UK for the reason that they might duplicate existing NATO arrangements.
A regained interest in European defense developed, after ten years of stagnation, when the European Council in December 2013 decided to reinforce EU military capabilities, whose shortcomings had been tragically exposed in the Libyan war of 2011. This was helped by an important evolution in the approach to common defense by the biggest but traditionally “pacifist” EU member, Germany. A “Global Strategy document” was presented just after the Brexit referendum by High Representative Federica Mogherini – the first serious attempt to update the “EU strategic concept”. These efforts have been boosted by the perception of American disengagement from Europe after the election of Donald Trump.
In November 2016, the European Commission proposed the creation of a “European Defense Fund”, which would support investment in joint research and joint development of defense equipment and technologies. The intervention of the EU budget, and possibly of the European Investment Bank, in the field of defense, was a novelty, but now seems to be accepted by most Member States.
The proposals made by Macron in his Sorbonne speech do not bring new ideas in this field. He mentions an EU intervention force – but the EU already has so-called “battlegroups” (1,500 soldiers, ready to be deployed with 10 days’ notice for a period of 30 to 120 days). No battlegroup has yet gone into battle; and the logistics of agreeing on the rules of engagement have not yet been harmonized. The focus for the moment is more on the development of common capabilities.
There is much hope in a tool which was included in the Lisbon treaties but was never implemented: the “Permanent Structured Cooperation” (PESCO). The idea is for a number of countries to commit to strengthening their cooperation in military matters by developing common capabilities. A concrete agreement on PESCO could come as soon as the end of this year.
The continuation of enlargement
When he started his four year mandate in 2014, Juncker promised that there would be no further enlargement of the EU during his term. By saying this, he expressed a widely shared feeling that, at 28, the Union has become very difficult to manage. He was also worried about increasing the East-West divide.
This message was not very well received in the Western Balkans, where candidate countries were making major efforts to get closer to the EU and to satisfy the ever more demanding “benchmarks” of their accession negotiations.
Now, two and a half years later, the Commission President has changed his tune, stating that “we must maintain a credible enlargement perspective for the Western Balkans”. The Commission is preparing a report, to be discussed in March 2018, on the way forward for enlargement. There is a new sense of urgency because of the economic stagnation in the region, but also to counter the clear intention of Russia (and Islamist groups) to fill the current power vacuum.
Montenegro, Serbia and Albania might join in the not too distant future. It will take more time for the other Balkan countries, who each have specific problems. With Turkey, on the other hand, the negotiation has been put on hold, and nobody wants to revive it in the current circumstances. Turkey however remains a NATO ally and an important neighbor with whom a successful agreement has been concluded to block the “Balkan route” for migrants.
Even without changing the EU Treaties, a certain number of ideas have been circulated in the last years aimed at facilitating the functioning of the EU institutions. The current momentum might give them more chances, even if some countries are openly reluctant, because of public opinion or to defend their divergent interests.
As discussed above, President Juncker has proposed that tax issues be decided by majority voting, using the “passerelle” formula of the Lisbon treaty; he also suggested “double hatting” the chairman of the Eurogroup and the Commissioner in charge of the EMU. This double hatting has worked well in the field of Foreign Affairs, with Federica Mogherini being at the same time a Vice President of the Commission and the “High Representative” presiding the Foreign Affairs Council.
Juncker goes even further in exploring this rationalization of EU leadership by suggesting that the President of the Commission be at the same time the President of the European Council. Since the two roles are widely overlapping, this idea, which does not require treaty change, might gain momentum.
However, this cannot be looked at separately from the procedure to select the president of the Commission. In 2014, the European Parliament imposed on the Council the formula of the “Spitzenkandidaten”, according to which the candidate chosen by the political group having obtained the highest number of seats in the Parliament’s election would be “elected” President of the Commission.
The European Council did not formally accept this procedure, but it enjoys strong support in political circles, notably in Germany. In his Sorbonne speech, President Macron suggests having “genuine European elections” – focusing on the broader future of Europe, and challenging the dominance of the existing party groups that he sees as a collection of national groups lacking common aims. To this end, he also suggests replacing the departing British MEP with candidates from different countries on a “European list” put directly to voters from across the EU. This idea, defended by European federalists, has little chance of being adopted; the counter argument is that this would further increase the distance between the Parliamentarians and the citizen.
More interesting is Macron’s mention of the need to reduce the number of Commissioners, from 28 to 15. This change is mandated by the Lisbon Treaties, but the European Council decided not to adopt it, at the request of the Irish government – this was part of its efforts to win a second referendum on the treaty, having lost a first one in 2008. This change is overdue (it was already mandated by the treaty of Nice of 2001), but Ireland would first have to renounce the assurances it had received.
A Summit on May 9, 2019, in Siriu, Romania
After a dinner in Tallinn on September 28, during which they discussed informally the ideas mentioned by Juncker and Macron, the EU leaders accepted Juncker’s suggestion to develop a reflection on the future of the Union, on the basis of a so called “Leaders’ agenda”, which should lead to agreed conclusions on the occasion of a special summit on May 9 (Europe day), 2019, in Siriu, Romania – the country that will then hold the rotating Council Presidency.
The agenda will include the various issues mentioned above – and others related to education, social issues, the future of the common agriculture policy, etc., which will be aired in the meantime.
It is clear that there is no consensus at this stage on any of these issues. Compromises will need to be made between the “federalists” and the “intergovernmentalists”. Germany will have to show how far it wants to go in further integrating the Eurozone. But the main challenge might be to bring more cohesion between the East and the West of the Union.
The biggest problem is not only economic coherence (economic growth is faster in the East than in the West). The gap is more cultural. It touches on attitudes towards migration and, in some countries like Hungary and Poland, the respect of the core values of the EU. This East-West gap even exists inside Germany where, in the East, the extreme-right-wing party, the Alternative für Deutschland, received twice as many votes as in the West.
Some, including President Macron, consider that an ambitious agenda for Europe’s future can only be implemented through a “two speed Europe” in which some issues and Member States would proceed faster than the others. This is the main reason he wants institutions and a budget at the level of the Eurozone.
Others are afraid that going this way will only widen existing divisions, and that the cohesion of the block will only be realized through patient, and not aggressive efforts – efforts that are ongoing, and will be helped by the current optimistic mood. The symbolism of a summit in Romania, from that point of view, is significant.