Further development of the EMU – should legitimacy come first or last?

Päivi Leino-Sandberg: Adjunct Professor of EU Law, Academy of Finland Research Fellow, University of Helsinki

The June 2012 European Council adopted a report setting out ‘four essential building blocks’ for the future Economic and Monetary Union (EMU): an integrated financial framework, an integrated budgetary framework, an integrated economic policy framework and, finally, strengthened democratic legitimacy and accountability.[1] In its discussions, the European Council stressed that:

Throughout the process, the general objective remains to ensure democratic legitimacy and accountability at the level at which decisions are taken and implemented. Any new steps towards strengthening economic governance will need to be accompanied by further steps towards stronger legitimacy and accountability.[2]

But while the European Council has repeatedly expressed its concern about the legitimacy problems of the EMU, the tools proposed for tackling these problems have remained extremely modest. This trend continues in the recent Five Presidents’ Report adopted in June 2015 (discussed here and here), which again includes a brief concluding section on ‘Democratic Accountability, Legitimacy and Institutional Strengthening’, but manages to discuss the topic without any tangible results. For many readers of the Five Presidents’ Report, it might not be evident that a further centralization of power to EU institutions will automatically bring about greater legitimacy. After all, in many cases the democratic guarantees continue to function best at national level.

There are various legitimacy related challenges that should be addressed if there indeed is a wish to make the EMU more sustainable. For example, think about the blurred division of competence between the EU and its Member States especially in the area of economic governance. While the Treaties still specify economic and fiscal policy as falling under Member State competence, the six-pack and the two-pack have increased EU level steering, and in practice turned EU recommendations binding by introducing sanctions for non-compliance. Since all EU institutions agreed on the necessity of these amendments, their significance for the division of competences between the EU and Member States has been subject to very little public discussion.[3] Many of the reforms are legally problematic, but a formal Treaty amendment reassessing the nature of Union economic policy competence was not deemed possible within the timeframe that has been deemed necessary. Ambiguity in drafting the rules has in many ways been intentional, but it has also contributed to blurring responsibilities between the EU and national level. The complexity of rules has increased, which in its turn has strengthened the discretion of the Commission in implementing the rules, and weakened faith in them. At the same time, Member States have needed to embark on numerous ‘solidarity operations’. In addition, the strict conditionality attached to financial assistance has had major implications for the policy choices of programme countries. As a result of the crisis and the way in which it has been dealt, Europe is effectively divided into creditors and debtors. Very few see the EMU as treating them fairly.  This has contributed little to the aim of improving the legitimacy of decision-making, and is probably the strongest motivation for the need to reform the EMU. An arrangement that is widely experienced as being unfair cannot be sustainable in the long run.

Second, thinking how many of the problems relating to the euro-crisis are connected with a lack of transparency when making past decisions, one would think that European decision-makers would now hurry to do what they can to improve openness. In April 2011 the President of the Euro Group, today the President of the Commission, Jean-Claude Juncker, was quoted as stating that when it came to economic policy, he was ‘for secret, dark debates’.[4] Even the more minor steps are still to be taken, such as the formal extension of the scope of Regulation No 1049/2001 on public access to documents to those held by the European Council; however, almost six years after the entry into force of the Lisbon Treaty stipulating such an extension, the amendment is still to be made. Most decisions aiming at curing Europe’s economic crisis are characterised by a lack of procedural transparency. Proposals have been made late; this sets clear limitations on national discussions,[5] as well, since they are then conditioned by the fear that the EU would – in particular in case national debates proved substantial and required amendments - not be capable of taking the necessary decisions in a timely manner. Again, this has not contributed to a stronger legitimacy of decision-making.

Last week, on 21 October 2015, the Commission adopted a package of proposals intended to implement the first stage of proposals included in the Five Presidents’ Report. In many ways, these proposals take the development to the completely wrong direction with respect to the concerns expressed above. The Commission Communication ‘On steps towards Completing Economic and Monetary Union’ once again includes the compulsory final section on ‘Effective democratic legitimacy, ownership and accountability’. It repeats the old ideas of dialogue with and debates in national parliaments, without adding anything new.

In fact, when reading the Commission Communication, there is fairly little to add to what the Grand Committee of the Finnish Parliament already commented to similar proposals in its Statement 4/2012:

“It is dangerous for democracy to adopt quasi-democratic rules that offer the appearance but not the reality of democratic legitimacy. […]The committee considers that respect for the treaty is a minimum requirement for the EU’s democratic legitimacy. […] The measures taken to control the economic crisis leave something to be desired in this respect, as regular procedures have been waived and serious doubts have been voiced about whether these measures are consistent with the treaty. […]Finally, the committee wishes to point out that democracy also requires that the principles of transparency and public access to documents are realised in the development of EMU.”

In short, the place of legitimacy and democracy seem to be exactly the same as they were in 2012.

As far as the trend of blurring competences is concerned, the package includes a Proposal for a Council decision laying down measures in view of progressively establishing unified representation of the euro area in the International Monetary Fund. While being somewhat out of touch with reality (in the form of decision-making rules in the IMF, and the modalities for amending them), the reading of Union competence reflected in the proposal is fundamentally flawed. The proposal refers to how the recent measures of economic governance

“have integrated, strengthened and broadened EU-level surveillance of Member State policies in essential areas of macroeconomic and budgetary relevance. The European Stability Mechanism was established as the permanent crisis resolution mechanism for the countries of the euro area. The Union has also put in place a Banking Union with centralized supervision and resolution for banks in the euro area and open to all other Member States. At the same time, the external representation of the euro area has not kept up with those developments. The progress that has been achieved on further internal integration of the euro area needs to be projected externally […].”

While unified representation does not necessarily mean a shifting of competence, in the view of the Commission, there is in the IMF context an obligation of “full coordination” of national positions. The proposal does not stipulate what happens if a shared position cannot be found. Considering that economic and fiscal policy remain national competence, as does the ESM, one wonders whether this new attempt to blur the division of competence further does anything to strengthen the voice of the euro group in the IMF, or whether actually the opposite is the case.

The new package also includes a Commission decision establishing an independent advisory European Fiscal Board, which many European actors have seen necessary in  limiting Commission discretion in the application of the rules of economic governance and making the monitoring exercise more objective. The Board set up by the Commission based on its own decision, and applicable as of 1 November 2015, now has the task of contributing ‘in an advisory capacity to the exercise of the Commission's functions in the multilateral fiscal surveillance as set out in Articles 121, 126 and 136 TFEU as far as the euro area is concerned’. For this purpose it shall provide to the Commission an evaluation of the implementation of the Union fiscal framework, advise it on the prospective fiscal stance appropriate for the euro area as a whole based on an economic judgment; cooperate with the national fiscal councils, and on the request of the President, provide ad-hoc advice.

While all of these are undoubtedly noble and necessary tasks which could contribute to strengthening the credibility of EU rules, the public is not to enjoy from information concerning them any more than the Member States are, since information provided by the Board is to remain primarily a Commission prerogative. The decision stipulates that the meetings of the Board shall not be open to the public. And as far as transparency is concerned, the Commission decision is rather straightforward:

Article 6 Transparency

The Board shall publish an annual report of its activities, which shall include summaries of its advice and evaluations rendered to the Commission.

It is of an interest that the Commission sees it fit to set up a body for assisting itself in exercising its Treaty-based tasks, administratively attached to the Commission's Secretariat General, but without a trace of the Treaty-based transparency obligations that apply to the Commission itself: the presumption of openness, and the principle that access to documents can only be limited on a case by case basis, based on Regulation No 1049/2001, which includes an exception to be invoked in case of harm to the financial, monetary or economic policy of the Union or a Member State. Instead of providing access as the main rule, apart from summaries published at a later stage, only the Commission is to know what the European Fiscal Board advices. While this would also seem to be contrary to the Treaty, such an arrangement does little to increase faith in the objectivity of decision-making or the legitimacy of the exercise. Instead, it seems to be nothing than a new way of buttressing the Commission’s own position in the application of rules by offering it the opportunity to justify its position with reference to unpublished advice by an independent Board.

At the same time, the Treaty of Lisbon would already offer a number of solid tools specifically aimed at tackling the Union’s well-known problems relating to democratic legitimacy, through improved openness and wider citizen participation in decision-making, and a clearer division of competence between the EU and its Member States. None of these reforms are as much as mentioned in any of the high-level reports. And yet, they would provide a number of concrete means for many of the problems illustrated above. The most recent Commission package yet again demonstrates a complete failure to grasp what legitimate decision-making is about. It matters how decisions are taken, and what their outcomes are. Therefore, instead of treating the questions relating to legitimacy and democracy as an appendix or afterthought in the style of the recent reports, these should be the questions that are tackled first. An economic policy that is not experienced as legitimate is seldom effective. This would be useful starting point for the further development of the EMU.

Barnard & Peers: chapter 19

Photo credit: voxeurop.eu

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[1] Towards a Genuine Economic and Monetary Union. A report prepared by Herman Van Rompuy, President of the European Council in close collaboration with José Manuel Barroso, President of the European Commission; Jean-Claude Juncker, President of the Eurogroup and Mario Draghi, President of the European Central Bank, 5 December 2012. See also European Council conclusions on completing EMU adopted on 14 December 2012. 

[2] December 2012, para 14; European Council conclusions on completing EMU, adopted on 18 October 2012, para 15.  For a discussion, see e.g. Päivi Leino and Janne Salminen, Should the Economic and Monetary Union Be Democratic After All? Some Reflections on the Current Crisis, 14 German Law Journal (2013) 844–868. 

[3] See Päivi Leino and Janne Salminen, “Going ‘Belt and Braces’ – Domestic Effects of Euro-crisis Law”, EUI Working Paper LAW 2015/15.

[4]“Eurogroup chief: 'I'm for secret, dark debates'”, published by euobserver on 21 Aril 2011, available at https://euobserver.com/economic/32222 .

[5] For a discussion, see Päivi Leino and Janne Salminen, ’The Euro Crisis and Its Constitutional Consequences for Finland: Is There Room for National Politics in EU Decision Making?’, 9 European Constitutional Law Review (EuConst) 3/2013 451–479.