This is the second part of my two-part series analysing the latest offering from the European Commission on Eurozone ‘reform’. Today, I consider the two ‘concrete’ proposals to emerge from last week’s – Completing Europe’s Economic and Monetary Union – policy package. The two ‘concrete’ proposals are: Creation of a European Monetary Fund to absorb the intergovernmental European Stability Fund and the integration of the Fiscal Compact into the Treaty on the Functioning of the European Union. Neither are reforms worth considering. In general, they reflect a desire by the European Commission to further extend its control and to make it harder for Member States to act unilaterally. Given these are the only two actual action plans that the European Commission has proposed in its latest salvo to
Bill Mitchell considers the following as important: Eurozone, Reclaim the State
This could be interesting, too:
Bill Mitchell writes The ‘truth sandwich’ and the impacts of neoliberalism
Bill Mitchell writes European-wide unemployment insurance proposals – more bunk!
Bill Mitchell writes German press and its politicians lose the plot – Europhiles be warned
Bill Mitchell writes ECB continues to play a political role making a mockery of its ‘independence’
This is the second part of my two-part series analysing the latest offering from the European Commission on Eurozone ‘reform’. Today, I consider the two ‘concrete’ proposals to emerge from last week’s – Completing Europe’s Economic and Monetary Union – policy package. The two ‘concrete’ proposals are: Creation of a European Monetary Fund to absorb the intergovernmental European Stability Fund and the integration of the Fiscal Compact into the Treaty on the Functioning of the European Union. Neither are reforms worth considering. In general, they reflect a desire by the European Commission to further extend its control and to make it harder for Member States to act unilaterally. Given these are the only two actual action plans that the European Commission has proposed in its latest salvo to extend the monetary union, one has to conclude that there is little chance that anything progressive will come out of this process. And, that should inform the Europhile Left that they are on the wrong horse. They seem to have a blind faith that pressure will eventually force the European Commission to come up with policies and structures that would deliver progressive outcomes. That faith is delusional. It would be better for the Europhile Left to come to terms with that reality and get behind progressive movements that seek to restore national (currency) sovereignty, which will allow the current Member States to restore full employment and start rebuilding some prosperity.
The use of the Eurobarometer to support integrationist ‘reform’
In its fact sheets, the European Commission quotes ‘research’ from the Eurobarometer, which is a “series of surveys conducted twice yearly since 1973 across all the member countries of the EEC/EC/EU … The Standard Eurobarometer is supplemented by ad hoc surveys on speci c topics (the so-called Special Eurobarometers and the Flash Eurobarometers)” (Source).
The European Commission publication (December 6, 2017) – Further Steps towards completing Europe’s Economic and Monetary Union – provides two graphs from the December 2017 Eurobarometer, which they claim shows that:
1. “64% of citizens in the euro area say the euro is a good thing – the highest level since the introduction of euro notes and coins in 2002”.
2. The second graph shows that 85 per cent of Irish respondents through the euro was a good thing down to 36 per cent of Latvian respondents.
They claim that this demonstrates the democratic nature of the euro.
Well I would conclude something different.
The Max Planck Institute Discussion Paper 15/6 (October 15, 2017) – How the Eurobarometer Blurs the Line between Research and Propagan – by researchers Martin Höpner and Bojan Jurczyk provides a detailed analysis of the veracity of the Eurobarometer survey process.
The title of the research paper is self-explanatory.
The conclusion is that:
… the Eurobarometer selects and frames questions in ways that systematically produce “integrationist” outcomes …
The authors refer to a Frankfurter Allgemeine Zeitung article (November 7, 2012) – Waren Sie heute schon europafreundlich? (“Were you Europe friendly today”)- which carried the sub-title “Self-deception and manipulation: The EU in its own statistics”.
This article popularised the research findings by the Höpner and Jurczyk.
The FAZ article quotes Winston Churchill as a being an early proponent of a “United States of Europe”. Churchill gave a – Speech – at the University of Zurich on September 19, 1946, where he was reflecting on the chaos in Europe as a result of the a “series of frightful nationalistic quarrels, originated by the Teutonic nations in their rise to power, which we have seen in this 20th century and in our own lifetime wreck the peace and mar the prospects of all mankind.”
He talked about the creation of the “United States of Europe” where France, Germany, the British and its Commonwealth, the US and Russia would “champion” a “new Europe”.
The FAZ article also quotes Churchill as saying “I only believe in statistics that I doctored myself” although the author is unsure of the origin of that quote.
In fact, Churchill said no such thing. It appears to be a German-myth, started by the Nazis during the Second World War to discredit the British leader.
But the point of the article is that:
Die Europäische Kommission scheint nun das Erbe Churchills anzunehmen, sowohl in dem, was er gesagt, aber wohl ganz besonders auch in dem, was er wahrscheinlich nicht gesagt hat.
That is, the European Commission seems to accept Churchill’s legacy, both in what he said (at Zurich) and what he probably did not say (the statistics quote).
Höpner and Jurczyk show that early research from the 1970s (when the Eurobarometer began its surveys) shows that the “intention was from the beginning to use polls for the purpose of justifying integration.”
They document a host of statistical flaws, issues, and problems with the Eurobarometer data collection methodology.
But the most striking results of this research and that of others who have similarly analysed the Eurobarometer is that it masquerades as research but can be accused of “intentional manipulation and, as a consequence, integrationist propaganda.”
The claim is that Eurobarometer:
… manipulates the instrument in a way that makes maximally integration-friendly outcomes likely.
There are many examples of this sort of tactic in the survey instrument.
The general conclusion is that:
… the Eurobarometer “constructs” a European public opinion that hardly exists empirically.
The authors conclude that in terms of the “ten basic rules” that survey instruments should follow, when analysing the Eurobarometer “all the violations we found systematically steer responses in a pro European, integration friendly direction.”
That type of research should condition our thinking when blindly accepting the European Commission’s constant claim that the vast majority of citizens in the Member States support the euro.
The two ‘concrete’ proposal in the ‘Roadmap’
There were two ‘concrete’ proposals in the ‘Roadmap’:
1. “A proposal to establish a European Monetary Fund”.
2. “A proposal to integrate the Treaty on Stability, Coordination and Governance into the EU legal framework”.
I say ‘concrete’ because these were the only two proposals that have any sense of an action plan attached to them.
That means that the European Commission intends that these two developments will constitute its major ‘reform’ agenda for the Economic and Monetary Union.
Which should tell anyone with half a wit that no meaningful reform is countenanced.
The agenda is really about tidying up developments that were introduced on a sort-of piecemeal basis during the crisis and consolidating them under European Commission control and Treaty law.
It doesn’t mean that will be administered as the term “law” is taken to mean. As we know, the European Commission and related institutions such as the European Central Bank, regularly and systematically break the Treaty laws for political gain.
But it is about further centralising control in the technocracy and taken away discretion from the Member States.
In other words, it is the anathema of democratic reform and will increase the democratic ‘deficit’, that has become apparent with Europe these days to anyone other than those with their Europhile rose-coloured glasses.
The creation of a European Monetary Fund
This is really the only substantial change being proposed by the ‘Roadmap’ and is all about further centralising control of European matters within the European Commission.
The proposal “to establish a European Monetary Fund (EMF)” has some history.
The idea is to absorb the current European Stability Mechanism, which was created in October 2012 as a means of helping Member States unable to fund themselves.
It was an explicit recognition that the EMU nations use a foreign currency and can easily find themselves unable to raise sufficient amounts of that currency in bond markets to cover their fiscal deficits.
The ESM is an intergovernmental institution based in Luxembourg with the EMU Finance Ministers becoming the Board of Governors. It emerged out of the “European Financial Stability Facility (EFSF), which was set up as a temporary solution in June 2010”.
The intergovernmental status means that the ESM is not currently integrated into European Union law.
Its role was to provide:
… a permanent solution for a problem that arose early in the sovereign debt crisis: the lack of a backstop for euro area countries no longer able to tap the markets.
The ESM has “its own capital of €80 billion” provided by the Eurozone Member States, which cannot be loaned out. Its purpose it to provide financial markets with the confidence that the ESM is widely supported within the Eurozone.
In addition, it raises funds on financial markets which it then loans out under strict (neoliberal) conditionality to Member States in trouble.
Of the six tools available to it the ESM has used just two – loans to Ireland, Portugal, Greece, and Cyprus and some indirect bank recapitalisation in Spain.
So, in effect, there is a bailout mechanism in place already albeit one that enforces the austerity bias. Its purpose is to “keep the euro together” rather than provide any progressive policy space.
The new proposal is discussed in this European Commission document (released December 6, 2017) – A European Monetary Fund.
If it goes to plan, the proposal would be adopted on May 9, 2019 at a meeting of EU leaders in Romania.
Underpinning the proposal is the following:
1. Integrate the ESM into the European Union Treaty – to give the Euoropean Commission more control. No reforms here.
2. A desire to kill the Troika – by which I mean deal the IMF out of any future bailouts in Europe.
3. Create a funding source for the – Single Resolution Fund – to buttress the “orderly resolution of failing banks with minimal costs to taxpayers and to the real economy.” There is not particularly new about this – the ESM already has this capacity (for example, in the Spanish case).
4. Fund cyclical stabilisation – nothing new.
Motivation 1 is window dressing.
Motivation 2 is geo-politics and changes nothing – the EMF will impose the same sort of conditionality as the IMF. In fact, one could argue that the IMF demands in the Greek bailout saga have been less damaging than the extreme (German-pushed) European Commission demands.
Motivation 3 concerning the banking union is no reform – that framework is so deeply flawed it should be scrapped.
Movitation 4 – as noted above, this function already exists. There is no hint the conditionality will be eased for nations seeking financial support.
So, on face value, it is hard to see what is new about this – other than the name and the incorporation of the ESM functions formally into the Treaty – this giving the Commission more control.
And, they are not even planning to formally alter the Treaty on the Functioning of the European Union. Rather they are proposing to use the so-called – Passerelle Clause – “that allows the alteration of a legislative procedure without a formal amendment of the treaties.”
The point here is that this Clause (the ‘small bridge’) “does not require national ratification” – so the people do not get a say – not that any of the previous ratification processes could be construed as being the result of democratic input and choice.
There is one change to current ESM practice, however, in this proposal.
The decision to provide assistance to a Member State seeking funds, which currently require unanimous support, would require an 85 per cent majority.
Doing the sums – this means that France, Germany and Italy – the three largest states in terms of voting power – would effectively retain the power of veto, while the smaller states would lose it.
There is no evidence, though, that the smaller states have ever held up an application for funding from the ESM.
Further, according to the European Commission, the EMF would:
… as a last resort, provide the common backstop to the Single Resolution Fund as part of the Banking Union. This would instil confidence in the banking system by underpinning the credibility of actions taken by the Single Resolution Board, thereby reducing the likelihood of a situation in which a backstop would need to be called on in the first place. The creation of such a backstop has already been agreed in principle, but needs to be made operational. Any potential deployment of the backstop would be fiscally neutral over time since any funds used would be recovered from the banking sectors in the Member States participating in the Banking Union.
First, the European Commission claims that:
… this action is necessary for the financial stability of the euro area.
But that is a spurious claim given that the ECB and the ESM have already used their capacities to ‘stabilise’ the Eurozone, by which I mean, stop it collapsing altogether, as it would have in 2010 and again in 2012 before the QE and bailouts began.
So the motivation for this proposal is not to enhance financial stability. This is about Commission control.
It seeks to deal out the IMF from future deals with Member States and probably foreshadows the fact that the ECB will dramatically alter course when Jens Weidmann takes over the Mario Draghi as the President.
Second, the “fiscally neutral” bias in all these ‘funds’ is continuing – that is, there would be no permanent intra-Member State transfers, which are common in functioning federations (such as Australia, Canada etc).
As I outlined in this blog (October 16, 2017) – Wolfgang Schäuble is gone but his disastrous legacy will continue – Wolfgang Schäuble’s non-paper told us exactly why the Eurozone will never become a functioning federation.
His parting offering as German Finance Minister was a 3-page – Non-paper for paving the way towards a Stability Union.
It argued that “there is little willingness” among Member States to move towards a true federation – in his words “transfer parts of national sovereignty and control of fiscal rules to the EU level (‘Euro Finance Minister’), together with a greater democratic legitimacy”).
The creation of a European Monetary Fund (EMF), which would just extend the existing European Stability Mechanism, “to provide temporary financial support under strict reform conditionality”.
So a European version of the IMF – keep a government solvent but force it to introduce scorched earth policy choices when it is beset with a negative non-government spending shock.
In other words, entrench the practice of pro-cyclical fiscal policy (cutting public net spending when non-government spending is declining), which is the anathema of sound fiscal practice.
Further, Schäuble writes that:
It is therefore important to expand the ESM’s radar and give it a stronger role in terms of monitoring country risks. The aim is to identify, in cooperation with other institutions, stability risks for and in Eurozone member states more effectively and at an earlier stage than in the past, and to monitor these risks so that they can be reduced by the affected countries themselves. The IMF’s Article IV consultations could serve as a blueprint for this new role.
Such a role for the ESM should also include monitoring compliance with the Member States’ obligations under the Fiscal Compact that was adopted in 2012. The ESM could gradually be given a stronger, neutral role with regard to the monitoring of the Stability and Growth Pact.
In other words, technocrats working within the ESM would be empowered to delve into Member State finances and impose conditionality where it thought the State was likely to (or was) violating the fiscal rules (Fiscal Compact).
Nothing democratic in that.
Nothing engendering responsible fiscal policy, where the aim is to advance well-being rather than adherence to inappropriate and context-free fiscal rules.
Further, the ESM would force defaults onto insolvent Member States and the losses would be pushed onto “private creditors” under a sharing arrangement with the ESM.
The ESM would not be a buttress to Member States struggling to meet the fiscal rules.
Schäuble explicitly rejects the idea of creating a ‘federal fiscal capacity’:
More ambitious scenarios and plans for the ESM and its financial capacities, either regarding the possible role as an additional backstop for the controversial European Deposit Insurance Scheme, or regarding a brand new fiscal capacity as a transfer mechanism for the Eurozone would put much too great a strain on the ESM and go against its core purpose of bailing-out countries in severe trouble.
That is, Germany remains firmly opposed to reforms that might render the Eurozone functional and capable of supporting sustained prosperity.
And for the historians among us, Schäuble’s insistence on a ESM watchdog recalls the original German proposal advanced in 1995.
Recall that in November 1995, the then German Finance Minister Theo Waigel circulated a Memorandum in which he proposed a ‘Stability Pact’ to restrict government fiscal policy discretion. The Maastricht Treaty had left the fiscal side of the EMU up in the air.
I discuss that in detail in my 2015 book – Eurozone Dystopia: Groupthink
and Denial on a Grand Scale.
The important point is that the European Commission has largely come out in its most recent ‘Roadmap’ with the Schäuble model rather than that outlined by Emmanuel Macron in his – September 26, 2017 Speech.
The difference between the December 6 proposal and Schäuble’s vision is that the European Commission intends to keep tight control within its current Excessive Deficit Mechanism and its related structures of fiscal monitoring and does not see the EMF taking over that function.
Third, the EMF proposal completely ignores the debate about Eurobonds, the creation of an automatic debt restructuring framework, and the integration into the European Deposit Insurance scheme. These are ‘reforms’ that many commentators have proposed, which the European Commission is having no truck with.
The Handelsblatt Global article (December 6, 2017) – EU power play misses goal – was fairly accurate in its assessment of the ‘Roadmap’.
As an aside, it reported that:
The European Commission unveiled its ambitious program for euro zone reform on Wednesday, pushing ahead with its agenda despite intensive lobbying from Germany to hold off for now. The proposals to centralize more power with the commission have virtually no chance of being passed in the current climate and are not likely to even be considered at the EU summit next week …
Even in the best of times, however, the proposals put forward by commission President Jean-Claude Juncker would be at odds with stances taken by Germany.
Mr. Juncker seems to be attempting a power play that is bound to fail. Ms. Merkel is not sitting in a penalty box and what may look like a political vacuum is actually a powerful force for resistance.
Its overall conclusion:
In general, the packet of proposed legislation and other suggestions presented Wednesday continue the commission’s efforts to centralize power in Brussels, whereas national leaders are wary of exposing their taxpayers to liabilities they have no control over …
The proposal to name an EU finance minister who would both sit on the commission and head the Eurogroup has few supporters …
In the meantime, Mr. Juncker is unlikely to score any points in Berlin with his attempted power play.
So, we conclude that even though the ‘Roadmap’ presents virtually no major shifts and just consolidates some of the austerity-bias under close European Commission control, the German (and probably the Dutch and Finish) governments would oppose most of it.
That is where the ‘reform’ process is within the European Union and the Eurozone, in particular.
The Fiscal Compact integration
This proposal does nothing much at all. Certainly there is no ‘reform’ being proposed. Just more of the same but with more European Commission control, although in this case, that ‘control’ has proven to be a moving feast – to suit the ideological aspirations of the neoliberal dominated Commission.
On February 1, 2012, as the crisis was ravaging Member State economies, the European Commission put out a press release – Treaty on Stability, Coordination and Governance in the Economic and Monetary Union – which outlined the new rules that the European Commission would impose on Member States in the Euro area.
The intention announced was to “incorporate the provisions of this Treaty as soon as possible into the Treaties on which the European Union is founded”.
The announcement was just formalising the decisions taken by the European Council on December 9, 2011 in Brussels and articulated in the – Statement by the Euro Area Heads of State or Government – which introduced the so-called “fiscal compact” to the world.
This was paraded as a “reinforced architecture for Economic and Monetary Union” – a move “towards a genuine fiscal stability union” – but in reality just made the Stability and Growth Pact even more unworkable.
It was the language of Germany. If you go back to the mid-1990s, when the Stability and Growth Pact was being debated, the Germans demanded that it be a ‘Stability pact’. It was the intervention of the French that saw growth added.
But, the reality is that the ‘fiscal compact’ just reinforced the austerity bias of the SGP, which had seen fiscal policy become a pro-cyclical policy instrument in the hands of the Euro governments (cutting public net spending when non-government spending was also falling).
Responsible fiscal practice requires policy interventions to be counter-cyclical (filling the gaps left by falling non-government spending).
The Council talked of an enhanced SGP and outlined what this fiscal stability union would require in terms of a new fiscal rule:
– General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP.
– Such a rule will also be introduced in Member States’ national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each Member State on the basis of principles proposed by the Commission. We recognise the jurisdiction of the Court of Justice to verify the transposition of this rule at national level.
– Member States shall converge towards their specific reference level, according to a calendar proposed by the Commission.
– Member States in Excessive Deficit Procedure shall submit to the Commission and the Council for endorsement, an economic partnership programme detailing the necessary structural reforms to ensure an effectively durable correction of excessive deficits. The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and the Council. A mechanism will be put in place for the ex ante reporting by Member States of their national debt issuance plans.
Which meant that the Member States effectively would lose their democratic mandates and instead answer to the Euro bureaucracy and the ECJ.
I discussed this development at the time in this blog – It became necessary to destroy Europe to save it.
See also – Tightening the SGP rules would deepen the crisis.
Nothing has subsequently changed to alter those assessments.
Prior to tightening the SGP, it was easy to show that just the cyclical swings (ignoring any discretionary shifts in policy) in the fiscal outcomes during the GFC drove the fiscal balances for many Member States beyond the SGP rules.
In other words, the existing SGP criteria were already impossible to meet during a significant downturn.
And then, the Euro bosses decided to tighten the rules even further and invoke pro-cyclical fiscal reactions earlier.
I considered that the 1/20 rule would be impossible to maintain – and history shows that to be the case – for example, Spain circa 2017. The 1/20 rule says that EMU member states have to keep their gross public debt ratios below 60 per cent of GDP. If the ratio is above that level then the rule will require that the state has to reduce the gross debt ratio by 1/20 of the difference between the current level and the 60 per cent threshold – every year!
The data shows that such a rule is ridiculous.
So what is part of the ‘Roadmap’ about?
The ‘Treaty on Stability, Coordination and Governance in the Economic and Monetary Union’ was created as an intergovernmental agreement, which meant it stood outside European Union law – the ‘Treaties’.
Now, 2017, five years on, the European Commission proposes to complete that process in January 2018 and ensure the ‘Fiscal Compact’ is under the control of the Commission.
The proposal does not consider changing any of the terms of the ‘Fiscal Compact’. All the negative aspects are retain and no new positive aspects are entertained.
The reality is that the fiscal rules are so inflexible to be unworkable at times when fiscal flexibility is required for responsible government.
Which means that the European Commission can embody them into European “law” as deeply as it likes but will still be unable to enforce deviations when a crisis hits or when entrenched austerity undermines governments they wish to support (for example, the current situation in Spain).
But, in saying that, the rules have allowed the European Commission to impose massive hardship (and destroy Greece) onto Member States when it suited their ideological agenda.
So while the rules are ‘strictly’ impossible to enforce during a deep crisis, they provide the Commission with cover to engage in its anti-democratic, neoliberal agenda.
I read a report in Spiegel (December 1, 2017) – The Dispiriting Prospect of a New Grand Coalition – which speculated on relaxation of current Eurozone fiscal rules (following Macron’s interventions).
The article notes that “Most in the CDU and CSU, however, want no such thing. They fear that the plan … would simply mean a further distribution of German money”.
Merkel’s only vision for a European Finance Minister would be that “he or she would concentrate on getting countries to stick to the rules and bring their finances in order … would be able to directly intervene in the individual states’ budgets. In other words, instead of becoming a source of unity, the question of Europe could become a breaking point for a new government.”
It is clear that the European Commission’s Roadmap proposal with regard to the Fiscal Compact doesn’t accord with anything Macron (or Schulz for that matter) wanted.
The only subtantive change that this proposal brings is that the European Parliament into the frame given it has oversight of European Commission decision-making and appointments.
Under Under Article 234 of the Treaty on the Functioning of the European Union, the European Parliament “may dismiss the European Commission on the basis of a motion of censure passed by a two-thirds majority of votes cast, representing an absolute majority (that is, more than half the total number) of the Members of Parliament (MEPs).”
But the reality is that 8 motions since the Parliament began in 1979 have been presented but none have succeeded. The oversight is thus, in fact, window dressing – the chimera of democracy.
So no reform here – just a further embedding of the austerity bias and prolonging of mass unemployment and the squandering of the lives of the youth of Europe.
The conclusion is obvious – there are no reforms being proposed that will advance any progressive agenda. In my view, the Eurozone is not capable of progressive reform.
The proposals just reinforce the neoliberal austerity and anti-democratic bias within the European Union, and particularly withing the Eurozone.
What the ‘Roadmap’ tells us is that the hopes entertained by progressives that they could chip away at the status quo and steadily introduce true reforms within the Eurozone are delusional.
Even the favoured Europe-wide unemployment insurance scheme proposal that the Europhile Left seem to adore has been rejected, which in my view is no loss anyway.
So the challenge to the Europhile Left is where to now? What hook is there for any hope that this can become a progressive area of policy any time soon?
The answers to both questions are: There is no place to go and that there is no rational basis to believe that true reform of the EMU is possible.
Which reinforces my view that the Member States should exit the Eurozone as soon as possible and restore currency sovereignty with democratic oversight.
In other words, Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.