The European Integration
The EU was created post-World War II with the idea that countries who trade with one another become economically interdependent and so are more likely to avoid conflict. This philosophy was embedded in the Schuman declaration. Jean Monnet’s small steps method was to lead with economical integration towards a political union.
Has the time come? At the end of 2014, Jacques Delors (Huffington Post) argued that Europe needed a new momentum. Mario Draghi (Project Syndicate) advocates that propositions from a genuine EMU are a good starting point – promoting a shift from coordination to common decision – making and from rules to institutions. Wyplosz or Calmfors and Wren-Lewis (Vox EU) also defend that policymakers are better able than quantitative rules to exercise good judgment and deliver an adequate mix of restraint and flexibility. For others, such as Daniel Gros (Project Syndicate), new flexible rules should be put on place with strong institutions to interpret them.
The Monetary Union as an illustration of possible European governance
Calls for an improved Monetary Union by José Manuel Barroso or by Balcerowicz (Project Syndicate) in the aftermath of the European Union crisis improved the European governance framework—increasing responsibilities for the ECB, development of a Macroeconomic Imbalances Procedure, the banking union, the ratification of the Single Rulebook board, the Single Resolution Mechanism and the Single Supervision Mechanism, are examples of the willingness to address pre-crisis institutional weakness.
More radical solutions to the current issues faced by the Eurozone are advocated by some, who view recent approaches as insufficient (Nicolas Veron), imperfect (as reflected in WS weekly blogspots (here) for example on monetary policy actions), or unable to resolve regional imbalances. Radical changes range from exit of some countries of the Eurozone, with Greece as an obvious candidate, to a two-speed EU, with for example the Geuro, a temporary Greek currency as advocated by Thomas Mayer (WSJ) and Jacques Melitz (VoxEu), or a Guldenmark for current account surplus countries proposed by Markus Kerber (Europolis). Finally, Giscard d’Estaing proposes to create a smaller union with politically & culturally closer countries (12 countries with no enlargement possible). Sapir and Wolff in a Bruegel policy brief advocates for an European Competitiveness Council and a Euro-system of Fiscal Policy exclusively for the Euro-area. The former would respond to the European’s imbalances, while the latter could exceptionally declare deficits unlawful.
Nevertheless, none of these changes could be considered without a deeper fiscal and tax integration within the EU and the Eurozone.
Towards a fiscal federalism?
Among resistance, some proposals could bring Europe closer to a fiscal union.
This is the case for example of Eurobond proposals: the Blue bond proposal by Delpla and Weizsacker (Bruegel), Hellwig and Philippon (VoxEU)’s eurobills. the German call for a European Redemption Fund.
More ambitious proposals propose a real budget for Europe, as a stabilization tool. Shahin Vallée (Bruegel), for example, argues that the mutualization of economic risks through the European Stability Mechanism or the ECB is inadequate to address most economic shocks. Pisani-Ferry, Vihriala and Wolf (Bruegel) or H. Kempf also call for a counter-cyclical budget in Europe. In 1977, the MacDougall report advocated for a federal budget between 5-7 percent of GDP to go with the monetary union. Today, the European budget represents only 1 percent of EU GDP. For Guy Verhofstadt (Project Syndicate), a EU budget would contribute to stopping the economic decline of Europe and to overcoming its competitiveness crisis.
The key issue with such proposals is implementation. For Delbecque (EconoMonitor), a EU budget could be done through transfers from governments, allowing for greater flexibility in the face of a negative economic shock. Others such as Piketty, Cohen or Delatte are in favor of a share of the corporate income tax within the euro zone (manifesto for a euro political union). Marzinotto, Sapir and Wolff (Bruegel) are in favor of the creation of a limited euro-area fiscal union, including the creation of a euro-area finance ministry.
At the heart of further integration, key requirement remains a more democratic organization of Europe.
In search of a democratic legitimacy
The rise of Euro-skepticism is a hurdle to deeper integration. David Cameron’s decision to organize a referendum in 2017 on whether stay or leave the “too much intrusive institutions and rules” illustrates these difficulties. Sapir and Wolff, again, would be in favour of the creation of a euro-area chamber to answer the implication differences in the European Parliament. Ettore Dorucci and al. show through the extended European Index of Regional Institutional Integration (EURII) the discontinuity that provoked the creation of the Monetary Union and the difficulties with which the EU has to face implementing the Political Union (see Killer Charts of this Focus).
Enhancing the democratic legitimacy could also be achieved through several devices:
Thierry Chopin, in a Robert Schuman post, recommends signing new intergovernmental treaties not engaging all members, consolidating the existing treaties or by writing new ones at the EU level.
A more accountable European Commission, with more power to national parliaments on important sovereign debates is another possibility, according to Grant. Merkel and Barnier advocated for an elected President of the EU commission (see Devoluy).
For Hearther Grabbe and Stefan Lehne (Carnegie Europe), the EU has to rebuild trust with European citizens. In the present political climate, any grand scheme will probably fail for lack of agreement among member states and insufficient popular support. The EU needs to first open up communication flows and facilitate participation. This is also the idea defended by Devoluy, for whom, an European media could answer this scarce European sentiment (Devoluy).
Dealing with the differences between the EU and the Eurozone is important. The creation of sub-committees for the Eurozone could help, for example with common social policies such as a minimum European wage (as proposed by Jean-Claude Juncker). The European civil service could be another approach to this issue. Barcelowicz thinks the enlargement of the single market on the model of energy hubs could be another solution.
By Thomas Calvo and Armand Beaude
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