E.M.U. AND THE GROWTH OF ECONOMIC AND POLITICAL POWER IN THE E.U.: THE FACTS
Dr Keith Strelling
CONTENTS
FOREWORD
SUMMARY
INTRODUCTION
THE ECONOMIC STRATEGY
T he Treaty of Rome
The Single European Act
Economic and Monetary Union: The Maastricht Treaty
The European Central Bank
LEGAL INSTRUMENTS
The European Court of Justice
THE INSTITUTIONS OF THE EU
The Commission
The Parliament
T he Council of Ministers
T he European Council
THE POLITICAL STRATEGY: THE CONSTITUTIONAL CHANGE
The Single European Act: Harmonisation, Taxation.
T he Treaties of Maastricht and Amsterdam:
Foreign and Security Policy, Police and Judicial
Co-operation, Competences, European Citizenship.
COMMENT
ECONOMIC AND MONETARY UNION?
CONCLUSION
“The Lord’s prayer contains 70 words, the Ten Commandments 297, the American Declaration of Independence 300 and the Common Market Directive on the export of duck eggs 26,911.”
Curiosity about the operation of the Brussels bureaucracy led to writing a paper about it which attempted to be factual and apolitical. It was circulated to a number of people for their opinion. Virtually all expressed surprise at the extent to which control of National governments’ affairs was vested in the Community and that the contents should be more widely known. This is an abbreviated version.
1. This review outlines the extent of the Constitutional change in Europe which has taken place through four major Treaties. European law, takes precedence over National law, and the European Court of Justice is the Supreme Court. In addition to the Single Market the Community now has Treaty authority to legislate on areas of basic sovereignty such as foreign policy, defence, border controls, asylum and immigration, international policing and justice, as well as taxation. The national veto has been widely abandoned.
Already, many of the prerogatives of a federal-style government are in place.
2. In the UK, Economic and Monetary Union is presented essentially in terms of possible benefits to industry and commerce. Conversely, leaders of the Euro-currency countries regard joining as primarily a political act, the culmination of a progressive centralization of power within the EU. Indeed, one of the outcomes of the 1986 Single European Act was that supra-national control was essential to realize the aims of the Single Market.
3. EMU however imposes a tight financial corset on the eleven Member States whose flexibility to respond to adverse economic circumstances, especially those of a global nature, is now limited. Maintaining stability in such a group of countries with very different economies is likely to increase the pressure for central political control, for example to effect compensatory fiscal transfers from richer to poorer nations or to enforce the Stability Pact if a government persistently borrows above the limit.
4. Hence the UK is at a critical juncture. The political implications of EMU must be clearly understood by the public. A decision should then be made openly whether or not we wish to pursue the road to a Political, as well as Economic union of Europe.
Our decision to join the Euro-currency area should hinge squarely on these inter-woven issues.
The ultimate goal of the European Union is, and always has been, political unity. The strategy has been to base this on economic integration but the prime objective of the most influential leaders in continental Europe has been constitutional: the French technocrat, Jean Monnet, whose post-war brainchild, the European Coal and Steel Community (ECSC), aimed at containing Germany’s military potential through a united Europe; Walter Hallstein and Jacques Delors, Presidents of the European Commission; successive Presidents of France after Charles de Gaulle, and of German Chancellors since Konrad Adenauer in the post-war period. Indeed, the Franco-German entente for mutually beneficial political and economic reasons, has been central to the growth of the EU. Helmut Kohl, an architect of Economic and Monetary Union (EMU), was particularly influential during his 15-year term of office, seeing the Single Currency as a major step towards political union.
Having different goals, we in the United Kingdom have been uneasy partners, keenly supporting the Single Market but stopping short of full economic integration and especially the concept of a supra-national Europe. Whether by design or omission, in the UK the EU has been presented primarily in economic terms and even at this late hour, over forty years since the Community was created, the all-important constitutional aspect is brushed aside.
The economic arguments over Economic and Monetary Union are outside the scope of this brief overview. Rather, it aims to place EMU in context by outlining the powers that have already been transferred from National Governments to the European Community.
The process of economic integration may be traced through four stages:
(i) the post-war agreement to place the coal and steel industries of France and Germany under a single High Authority, which developed into the ECSC when joined by Italy, Belgium, Holland and Luxembourg in 1951;
(ii) the 1957 Treaty of Rome between the same six nations founding the European Economic Community (EEC), based on the Common Market;
(iii) the 1986 Single European Act aimed at completing the Common or Single Market;
(iii) The Maastricht Treaty, which in 1992 mapped out the pathway to Economic and Monetary Union, (EMU).
A. THE TREATY OF ROME, 1957
The foundation Treaty of the European Community, this established the principles and practice of the Community based on the Common Market, in which workers, goods, capital and services would become freely exchangeable between Member States. Specific exemptions from the terms of the competition policy were granted for agriculture through the Common Agricultural Policy (CAP), a protectionist system in effect guaranteeing high French farm prices. The Common Fisheries Policy (CFP), which opened up the well-stocked British fishing grounds to other Member States, was added later to the Treaty whilst the UK was negotiating entry to the Community and which we were then obliged to accept.
The structure and operation of the Institutions of the EC responsible for implementing the provisions of the Treaty, were also laid down. These are: the Council of Ministers, the European Commission, the European Parliament and the European Court of Justice with its later subsidiary, the Court of First Instance. The European Council, as distinct from the Council of Ministers, refers to the summit meetings of Heads of Government. In 1999, the independent European Central Bank came into being, charged with maintaining price stability in the Euro-area.
B. THE SINGLE EUROPEAN ACT, (SEA) 1986
In order that goods may be traded freely between Member States, technical specifications had to be standardized, or harmonized. Thus far, this process had been slow, being negotiated on a case-by-case basis. The Act therefore was aimed at translating Single Market theory into practice. First, this would be through the principle of Mutual Recognition—goods acceptable for sale in one Member State should be acceptable in all, or when necessary, legislation on common standards would be enacted in the Council of Ministers.
Secondly, instead of requiring unanimous voting in Council, decisions would be made by Qualified Majority Voting (QMV), a complex system in which the number of votes allocated to Member States was based on, but not proportional to, their population. This system favoured smaller States who could form a blocking minority. No nation could henceforth exercise the right of veto over Common Market legislation.
The same strategy was to apply to every sector fragmented by divergent national standards. The scope of these was neatly encapsulated in 1989 by the ‘Times Guide to 1992’:
“The internal market programme means the removal of physical, technical and fiscal barriers. In everyday life and business it means that we—the 320 million citizens of the EC—should be able to move around Europe without hindrance in an integrated transport network based on free competition; to work in any of the twelve Member States on the basis of harmonized qualifications; to sell our goods in any other EC country as if it were our home market on the basis of harmonized standards; to deposit and borrow money anywhere in the EC, perhaps with a European central bank to control the money supply; in short, to think, work and act as if Europe were one country.”
But Europe is not one country. Each sees European integration as furthering its interests in different ways. France aspires to greater political and economic influence and maintaining high agricultural prices. Germany has based its policy on seeking rehabilitation within a Federal Europe. Their entente, cemented at the Treaty of the Elysée in 1963, exerts a powerful influence on the direction of the EU. Italy and Spain lack strong political traditions and see the EU as strengthening their political base. Many of the smaller countries feel they would benefit from a greater EU identity and some, notably Spain, Portugal, Greece and Ireland, are net beneficiaries. The United Kingdom is distinguished by unique political and legal systems matured over many centuries and shares political traditions, law and language as well as extensive trade relationships with the United States.
A decade after the SEA much of the Single Market has been realized. The Commission was able to issue a very large number of Directives and Regulations, often in minute detail, most of which have passed into European law.
According to a recent estimate, over 23,000 EU legal acts are in force and on Government figures, around one third of British law now originates in Brussels.
The date for completion of the Single Market was set at 3lst December 1992.
C. ECONOMIC AND MONETARY UNION: THE MAASTRICHT TREATY, 1992
The Maastricht Treaty, which set the Community on course for Economic and Monetary Union, was the most far-reaching stage towards economic integration. Precise limits were set for a group of national economic and monetary performance figures (the convergence criteria) to which Member States aspiring to join should conform. The criteria governed the rate of inflation, budgetary discipline (budget deficit and government debt in relation to national output), long-term interest rate as well as a low exchange rate variability. Despite varying interpretation of compliance and a good deal of creative accounting, eleven countries were deemed to have met the convergence criteria and joined EMU and the Single Currency. Britain and Denmark obtained derogations, Sweden remained outside and Greece did not qualify.
On the first January 1999, the Euro legally became the national currency of the eleven countries participating in EMU. Fixed conversion rates for each of the eleven currencies with the Euro came into force. Three years later, in 2002, national currencies will cease to exist.
The European Central Bank assumed control of European monetary policy. The ECB’s primary goal is “to maintain price stability”, setting a common short-term interest rate for all countries in the Euro area. It is prohibited from financing government deficits and is protected from political interference.
Monetary policy decisions of the ECB are made by the Governing Council, which comprises the Executive Board together with the Governors of the eleven National Central Banks in the Euro area. Decisions are made by simple majority. Currently it meets once a month and reports quarterly.
The Stability and Growth Pact, 1996
Budgetary discipline in the Euro-area has to be maintained by limiting budget deficits to 3% of national product or face financial sanctions. The offending government is required to make a non-interest bearing deposit. If the deficit is corrected within a two-year period, the deposit is returned. If not, it becomes a “fine” and is shared out among the other Euro-area members.
Entry into Economic and Monetary Union is irrevocable.
The central consequence of joining is loss of national control over key areas of policy to the supra-national Institutions of the Community, essentially a political decision.
The EU has considerable powers to make laws which then become binding on all Members of the Community. The principal legal instruments are Directives, Regulations and Decisions, each of which takes precedence over national laws.
1. DIRECTIVES
Directives from the Commission ratified by Council have first to be enacted by National Parliaments before obtaining legal force. Member States have flexibility over the form but not the obligation of legislation. The zeal to which they are applied is quite variable.
The volume of Directives from the Commission frequently means that they are not adequately scrutinized in the European Parliament or the Council of Ministers. This also applies to National Governments. The Commons Committee on European Legislation is able to report on less than half the documents it receives each year.
Directives have been the main means of implementation of the Single Market.
2. REGULATIONS AND DECISIONS
Both the Common Agricultural and Common Fisheries Policies are governed by Regulations from the Commission which differ from Directives in that once issued, become law throughout the Community. The Commission has signalled its intent to widen the scope of these and so avoid the closer scrutiny of National Parliaments. Decisions are similar but apply only to whom they are addressed.
3. COMPETENCES
Rights, provided by Treaty, for the Community to decide or legislate in a given area. Competences were widely extended at Maastricht and Amsterdam to areas beyond the Single Market.
4. SUBSIDIARITY
The principle that decisions should be taken as near to the citizens as possible is scarcely applied by Article 5b: “The Community, rather than a Member State, shall act in matters over which it has exclusive competence” (such as the Single Market), “if a provision has general application or if, in the opinion of the Commission, the Community would be more effective.” The application of the principle therefore is much more limited than is generally supposed.
5. THE ACQUIS COMMUNAUTAIRE
The Acquis or Community heritage, incorporates all the Treaty provisions, laws and policies which have evolved at any given time and is then irrevocable. As a result, the Community steps up its powers with each new provision. This locked-in nature of Community law makes reform difficult without a major amendment to the Treaty.
6. QUALIFIED MAJORITY VOTING
The scope of QMV in Council and consequent loss of the veto has been progressively widened with each Treaty, for example to the entire Single Market programme, economic and monetary policy, employment and workplace conditions (the “Social Chapter”) and the implementation of “joint actions” in international policing and justice and foreign policy and defence. With the present number of Member States 62 out of a total of 87 votes are needed for a majority but only 26 for a blocking minority.
7. THE EUROPEAN COURT OF JUSTICE
As the Supreme Court of the EU, its rulings take precedence over Parliament and the House of Lords. It may overrule Acts of Parliament, as it did after the British Parliament had outlawed quota-hopping in 1988 and thus allowed Spanish fishermen, registered under the British flag, to catch against the British quota.
The Court is empowered to “ensure that the law is observed in the interpretation and application of the ... Treaty”. As a result it effectively makes law through its constructive interpretation of the European Treaties and sees its role as primarily promoting Community interests.
The Court has 15 judges, one for each Member State. Its deliberations remain secret and dissenting judgments are not published so that it fails to operate within a democratic framework. There is no appeal against the Court’s rulings.
THE EUROPEAN COMMISSION
The European Commission in Brussels is the power-house of the EU and its influence is immense. Yet none of the 20 Commissioners nor its President are elected. Their portfolios are allocated within 24 Directorates General, the most influential being: trade, economics, Single Market, enlargement, competition, farming and the budget. The President has a high profile and joins in summit meetings, including those of the G8, on a par with Heads of Government.
The Treaty of Rome gave the Commission the following powers:
1. The exclusive right to draft legislation. The resultant prescriptive Directives have grown into a large body of European law.
2. The right to “its own power of decision”. As the guardian of the Treaties it may issue its own Regulations as, for example, to enforce the Common Agricultural and Fisheries Policies.
3. The right to “participate in the shaping of measures taken by the Council and the European Parliament”. As a result Commissioners are present, and active, at all three stages of the legislative process: drafting, debate in the Parliament and implementation in the Council of Ministers.
4. The Commission also largely controls the Community expenditure through responsibility for the budget and the external aid and internal structural and cohesion funds intended for less prosperous regions. In practice these are subject to intense lobbying and may not always reach areas of greatest need.
5. The Commission is responsible for implementation of the Treaties and negotiates Treaties on behalf of the Council.
Although Commissioners are charged, under oath, to be independent of their National Governments and “act in the general interests of the Community”, the recent report of the five “Wise Persons” exposed the reverse, i.e. that a large number of national experts had been drafted in so that the Commission had become the victim of national interests. Agriculture, for example, had become virtually a French fief.
THE EUROPEAN PARLIAMENT
The Parliament was intended to give democratic legitimacy to the Community but despite acquiring increasing powers with each Treaty, it cannot initiate legislation and has failed to win the confidence of the public.
Beginning as an Assembly only required to give its Opinions it was not directly elected until 1979. It was granted a second reading of draft laws at the Single European Act and a third at Maastricht. The result is that the Parliament does have the ability to amend or even reject laws, for example nearly 2000 amendments of Euro-law on national statute books followed the Single European Act. Its main power is Co-decision with the Council of Ministers established at Maastricht, allowing Parliament to veto (by absolute majority) any legislation on which it has not reached agreement with Council. Parliament can then act by direct negotiation with Council in a Joint Conciliation Committee.
At Amsterdam co-decision has extended to almost forty areas, including such broad fields as free movement of citizens, transport policy and regional subsidies as well as the Single Market, employment and social policy.
There are 626 MEPs and 9 political parties across the political spectrum. The two largest are the European Peoples Party (EPP) and the Party of European Socialists (PES) right and left of centre respectively.
The Parliament however operates under a number of disadvantages:
1) It needs absolute majorities to amend laws. Parties may coalesce and regroup over national, regional or sectoral interests and it is often indecisive. Political control is unlikely until Members fight elections as genuine Europe-wide parties, unlikely in the foreseeable future.
The adversarial operation of our own Parliament stands in contrast.
2) It has to function in three places: Strasbourg for monthly sessions in the new Louise Weiss building, Brussels for committees and “mini plenaries” and Luxembourg for its Secretariat. These divisions are wasteful of time and money and undoubtedly diminish the Parliament’s effectiveness.
The United Kingdom is reluctant to see further extension of the Parliament’s powers fearing further erosion of those of National Parliaments. Conversely the Community may be following a conscious model in which the Parliament becomes the main legislature.
The Parliament has defined its role as promoting European integration with politics the driving force. A resolution on the Amsterdam Treaty considered “That the Treaty marks a further step on the unfinished path towards the construction of a European Political Union ..”
THE COUNCIL OF MINISTERS
The Council’s headquarters is the new Justus Lipsius building in Brussels. It does not sit in permanent session but is composed of ministers (one from each State) appropriate to the subject under discussion, the most important being Finance, Foreign and Agriculture policies. The task of Council, in its various ministerial forms, is to examine draft measures in conjunction with the Parliament and amend, accept or reject them.
Most of the preliminary work is done by EC ambassadors in Brussels, the Committee of Permanent Representatives known as COREPER, or in working groups with little or no discussion among Ambassadors. Much of the power of Council resides with these committees who are able to cut compromise deals, the preferred method of agreement in Council.
It meets in closed session and, because Ministers are authorized to commit their National Governments, they are substantially unaccountable to the electorate.
Two major areas of policy are decided at inter-governmental level in the European Council and requiring unanimity: Foreign Policy and Defence, as well as cross-border Policing and Justice, respectively the second and third pillars of the EU. The aim is to establish “common positions” or take “joint actions”. Although not legally binding, these influence the way the European Court of Justice interprets the Treaty or may subsequently be passed into law under QMV by the Council of Ministers.
Finance Ministers of the 11 Euro-currency countries also meet in a semiofficial group, Euro-11, to consider matters relating to EMU. This is a broad field which it is feared may usurp some of the functions of Finance Ministers in Council.
THE POLITICAL STRATEGY: THE CONSTITUTIONAL CHANGE
A. THE SINGLE EUROPEAN ACT
l. The Act was the first major constitutional change after the Treaty of Rome. The Community had grown to 12 with the accession of the United Kingdom, Ireland and Denmark in 1973, Greece in 1981, Spain and Portugal in 1986. As all Single Market measures would be decided by QMV in Council, the Act effectively transferred legislative authority from individual nations to the Community. Harmonization measures are comprehensive, ranging from industrial products, commerce and financial services to taxation. Most technical and professional qualifications, including such complex areas as medicine and law, are also subject to standardization in order to permit practice in any Member State.
2. Currently there are a number of tax harmonization proposals potentially harmful to Britain’s economy. The harmonization of VAT rates may mean the abolition of Britain’s zero rating on food, books, newspapers, children’s clothes and possibly even main home purchase. A draft Directive, planned to become law on the lst January 2001, to impose a 20% withholding tax on interest paid on international bonds and offshore savings, seriously threatens London’s leading position in the world’s bond markets. The proposed droit de suite, a levy on the sale of works of art payable to the artists’ heirs, for which London is the major centre in the EU, simply means that sales move to a non-EU country. Other tax harmonization measures are being examined. Although the option of veto is retained in fiscal matters there is already a move to change this to QMV. Moreover the European Parliament is calling for the EU to be given new powers to raise its own taxes.
B. THE TREATIES OF MAASTRICHT AND AMSTERDAM: COMPETENCES
1. The Treaty of Amsterdam, 1997, appreciably changed the centre of gravity of decision-making towards the centre. Henceforth theCommunity Method would apply, i.e. that the Community will take on a more active leadership role in formulating and guiding policy, which had previously been the responsibility of individual Member States acting together. QMV was extended to many new areas and was destined largely to replace unanimity in Council.
2. The Community extended its sphere of influence to areas of policy beyond the Single Market, which had hitherto been its main concern.
i. The Common Foreign and Security Policy (CFSP). This was defined as “including all matters relating to the security of the Union, including the framing of a common defence policy, humanitarian and rescue tasks, peacekeeping and combat forces.” Principles and guidelines would be determined by the European Council of Heads of Government but decisions would be implemented by QMV in the Council of Ministers.
ii. Justice and Home Affairs (JHA) at Maastricht was re-titled at Amsterdam Police and Judicial Co-operation in Criminal Matters, with a greater emphasis on international crime, as fraud, drug trafficking and terrorism. The Schengen agreement on internal border controls was incorporated into the Treaty and matters such as immigration and asylum policy came under Community law. The UK, fearing the effect on terrorism, were able to retain border controls.
iii. The scope of Competences was greatly extended by both Treaties. The Community now has jurisdiction over such matters as social policy and workplace conditions, employment, public health, the environment and industry. There was also power to suspend voting rights of any Member State deemed to have breached the fundamental principles of the Union, such as human rights.
iv. A concept of European Citizenship was introduced at Maastricht. A body of Citizens’ Rights (including voting rights) was incorporated into the Treaty with the aim of promoting a European identity.
The ‘Times Guide to 1992’, concluding its review of the Single European Act, wrote in 1989: “The integration process will lead to whatever destination the dominant political figures of Europe wish. In October 1988 the European Parliament made clear what that goal was by passing a resolution .. calling for a common EC security policy; a European central bank and single currency; further transfer of powers from Westminster and other National parliaments to the European parliament; and European citizenship”. Owen and Dynes continued “Such visions seem far-fetched, and may remain just that—visions.” Yet, a decade later, each one of these has become a reality and subject to the Treaty.
Moreover the pace of integration is now quickening. Under the Flexibility clause of the Treaty of Amsterdam a group of Member States may proceed more rapidly with certain measures if so authorized by Council: so-called, “variable geometry”. A draft Charter of Fundamental Rights and Freedoms being debated at the current Inter-Governmental Conference promises to become a new constitution for Europe, presumably with enhanced legal and political authority, when enshrined in a major Treaty revision at Nice in December 2000. The IGC also proposes a Europe-wide system of’ criminal law and removal of the national veto over tax harmonization “for the proper functioning of the Single Market”, with majority voting becoming the rule.
But the rate of change in the EU has far out-paced the rate of reform.
The outstanding need is a proper system of checks and balances. The Commission, the Parliament, the Council of Ministers, the Court of Justice and the European Central Bank each meet in closed session. The lack of transparency is perhaps the EU’s greatest flaw and has had the inevitable result of fostering a culture of incompetence and fraud, recently exposed in the Commission.
In many respects the EU has remained protectionist and inward looking, although this aspect has received little attention. For example, although tariffs and quotas between Member States have been largely abolished, these are applied to external countries. “Unfair competition”—goods from overseas sold relatively cheaply—may be halted by import quotas or so-called anti-dumping tariffs.
The major reform which the IGC must make is to adapt the Community Institutions, designed for the original six Member States, to accommodate new applicants from eastern and central Europe bringing the total to 25 or more. This is widely supported, particularly by Britain in the interests of promoting peace and supporting fledgling democracies, but will inevitably mean dilution of national representation. Not every country will be able to have a Commissioner for example. As many of these countries are predominantly rural the heavy subsidies of the Common Agricultural Policy will need re-directing.
The political direction of the EU is clear. At this stage it would be wise to pause and carefully take stock before committing ourselves irrevocably to losing one of the most sensitive areas of political autonomy, the ability to control Fiscal and Monetary policy. Judgment over EMU should be based on a knowledge of the powers that have already been transferred to Brussels and to do this the British public should have this information clearly available.
Powers traditionally allocated to federal governments, (as in the US) cover defence, foreign policy, currency, central taxation, the Supreme Court of Appeal, the signing of treaties, nationwide legislation, immigration, policing and citizenship. The EU has progressively increased its jurisdiction in each of these areas. If the United Kingdom were to join EMU it should be done with the consent of the British public in the knowledge that EMU cannot be reversed and that it would represent the final major building block enabling the EU to create a Federal Government of Europe.
W.M. Duisenberg, Dutch President of the European Central Bank, recently stated “EMU is, and always was, a stepping stone on the way to a United Europe”, a sentiment echoed by Joschka Fischer, the German Foreign Minister: “Political union .. is the logical follow-on from economic and monetary union.”
Romano Prodi, the new President of the European Commission, spoke uncompromisingly: “The Euro was not just a bankers’ decision or a technical decision, it was a decision that completely changed the nature of the nation states. The pillars of the nation state are the sword and the currency, and we changed that.”
The United Kingdom is therefore at a critical juncture. Before committing the UK to EMU and giving up the Pound, there is a single, overriding decision we should make. That is: What is the future political direction we wish to pursue within the European Union?
Keith Strelling February, 2000.
MAIN SOURCES
The following have been invaluable:
l. OWEN R, DYNES M.: The Times Guide to 1992. London: Times Books Ltd., 1989.
2. COWGILL A, A COWGILL: (a) The Maastricht Treaty in Perspective: 3rd Edition 1996.
(b) The Treaty of Amsterdam in Perspective: 1998. Stroud UK: British Management Data Foundation.
3. LEACH R. A Concise Encyclopedia of the European Union. London: Profile Books Ltd., 1998.
4. The Economist.