October 24, 2011
The euro-zone is undergoing an existential crisis, which can be attributed to three fundamental causes:
- a mismatch of economic governance among euro-zone member countries;
- an insufficient oversight of national economic and fiscal policies;
- the absence of effective sanctions against non-compliance with joint policy rules.
The present crisis is the result of more than 10 years indulgence and negligence by the Commission and national finance ministers. All member states share the responsibility for the present mess.
But Greece must accept a special blame for having done nothing to bring its legislation, administration, party/ electoral system and judiciary in line with the standards prevailing in the rest of the EU. Today. the EU pays the price for having rushed Greek accession in 1981 without due diligence and accepted its premature entry into the euro-zone in 2001.
For a country with just 10 million people the huge bill to be paid during the next 10 years should serve as a deterrent against potentially bigger wrong-doers in the future.
The existing treaty safeguards against economic and fiscal policy misbehaviour have proved inadequate.
All member states with the exception of a few particularly virtuous small ones like Luxembourg, Denmark or Finland have failed. In 2010,the average budget deficit of the 17 euro-zone countries was twice as has high as authorised by the Treaty (6.2 instead of 3.0 per cent of GDP); and public debt was a quarter higher than authorised (85 per cent instead of 60 per cent of GDP). This did not happen over night but as the result of governments living more than one decade beyond their means.
The surveillance and correction mechanisms introduced in the Treaty since the very beginning of the monetary and economic union in the 1990s did not function, because of connivance among finance ministers, none of them willing to judge colleagues too harshly for fear of finding themselves one day in the same situation.
The most recent legislative changes give the Commission more powers as a neutral umpire by making it more difficult for member states to reject its remedial proposals.
But the procedure remains slow and subject to political manoeuvres. This has induced officials in Berlin and elsewhere to propose a radical cure that would authorise the Commission to impose sanctions on member states failing to make the necessary efforts in addressing excessive budget deficits, without Council agreement.
change the Council voting procedure in case of emerging deficits or macro-economic imbalances, thus facilitating the adoption of Commission sanction proposals.
Both changes are radical compared to presently accepted practices; they would require amendments of articles 121 and 12 6 of the “Treaty on the Functioning of the EU”.
The German government, supported by the Netherlands, envisages a minor treaty amendment that would only apply to euro-zone member countries. Even if such amendments will have to be approved and ratified by all member countries the ratification will be simplified as the new provisions will be phased in progressively in the course of the next 15 years as member states will introduce the Euro.
On October 23rd the European Council has asked its President to present a note of reflection on the opportunity and possible scope and procedure of convening a special convention for elaborating precise text proposals.
Whatever the precise outcome of these particular suggestions, the ongoing imbroglio around European economic governance makes a more thorough reflection on the way in which member states need to articulate what remains of their national sovereignty on economic policy indispensable. Why then not invite a convention to look at the complex treaty provisions on economic governance in the age of global governance?
Author : Eberhard Rhein