The implications of the EU summit for EMU governance

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Written by Sebastian Dullien & Daniela Schwarzer   
Wednesday, 27 June 2007

The results of the EU summit have been extensively commented since last Sunday. However, we at Eurozone Watch believe that a number of aspects which are relevant for economic governance in the EMU have not been elaborated in the debate so far.
  • The first concerns the decision to eliminate free competition from the European Union’s objectives. Firstly, we in principle agree that free competition need not necessarily be listed as an objective of the European Union. Free competition is an instrument to achive growth and international competitiveness, not an end in itself. Thus, the case for the elimination from the Union’s objectives can be argued, without necessarily questioning as such the concept of free competition within the Single Market.

    • The potential political consequences of the highly symbolic decision to change the objectives defined in the European Union Treaty under the current circumstances yet have to be carefully assessed. Eliminating competition from the Union’s goals is the major concession to the French President Nicolas Sarkozy. It is “sold” as a response to the mostly leftist critique in the French debate on the Constitutional Treaty which stamped the EU’s Common Market and competition policies as a Trojan horse of globalisation. Last week-end’s decision was celebrated as a major victory by Sarkozy in some French media. Some interpretations went as far as celebrating the beginning of an end to competition as a functioning principle of single market.

      Does the decision mean that the functioning of competition is at risk once the new Treaty enters into force? The EU Commission in our view will not be automatically weakened. It still possesses the same means to pursue its previous tasks in subsidy and merger control. But, in order to affirm its role, it may even toughen its implementation of the EU’s competition policy, especially as national protectionism within the EU’s borders has increased in recent years.

      So, instead of bringing relaxation, the decision to change the Union’s goal may turn out to be another element that fuels tensions between the Commission and the national EU governments. Given the reflex by national policy makers to engage in anti-Brussels-rhetoric, these developments may in fact lower public support for integration. After all, with the Coucil’s decision to revise the Union’s goals which have been part of the EC’s Treaties ever since integration started, expectations were raised that something would substantially change. But there is not much reason to assume it really will.

      On the contrary. If tensions on the EU’s competition policy rise, they will make the still embryonic discussions on the question whether the EU competition policy as such has to be reformed in view of global competition surely more difficult. The fronts between those which argue the case for a revision of the policy (notably its underlying concept of the relevant market) in oder to promote the emergence of “European champions” and those who cling to the traditional concept of a maximum of competition within the Union’s borders to bring about globally competitive players, are likely to harden.

      From an EMU perspective, it would be infortunate if these developments led to even lesser dynamics in the integration of the markets. The political will to go forward notably with the integration of capital, labour and services markets has in any case declined in recent years, as the steps that would be coming up next touch on the more sensitive issues, given the degree of integration already achieved. Insufficient market integration yet remains one of the obstacles to a smooth functioning of the EMU, especially as the fiscal regime in EMU likewise does not meet the challenges of a currency union.

      The second aspect concerns the overall tense political climate at the summit. The German government had set itself a huge task to forge a compromise on the new Treaty’s elements before launching the Intergovernmental Conference. The most problematic conflicts of interest where between the “ratifiers” and the EMU-outs (Poland, the UK, the Czech Republic). France and the Netherlands, both non-ratifiers after failed referenda but Eurozone countries, contributed less to the complications to the summit (although they, in contrast to the non-ratifiers who did not even attempt to ratify the Treaty, indeed had a legitimate case to make after a democratic rejection of the Treaty).

      Despite this seeming harmony between the Eurozone countries, it also has to be seen soberly that none of the EMU countries coalised to create an outreaching political impulse to the EU or EMU. From that perspective, the EU summit and its result in our view (and in contrast to many of the relieved comments in the mass media) didn’t as such create any potential for future dynamics.

      The summit, yet, confirmed one tendency we commented on amply before: Nicolas Sarkozy again positioned himself as the dealmaker (which was actually the Presidency’s job) and he seems willing to act as an agenda setter in EU affairs as of now and up to the French EU Presidency in the second semester 2008.

      Well before the EU summit, he announced that he would await last week-ends meeting and the end of the German Presidency before he comes forward with suggestions how to reform the Eurozone (he announced a French-Italian initiative on that matter). His first occasion to put his ideas up for discussion will be the July Ecofin meeting – which he as as French Head of State will attend against all EU traditions along with his new Finance Minister Christine Lagarde.

      As a third aspect we underline that last week-end’s results are likely to contribute to asymmetric integration processes (two-speed or core Europe). The UK negotiated further opt-outs, which – at times of the Maastricht Treaty were the big exception with the EMU – now form part of European normality. The tendency towards patch-work coalitions along certain policy areas will increase. They are there already, most visibly since the start of EMU (with the UK, Denmark and Sweden being long-term opt-outs), but also in other policy fields such as justice and home affairs.

      If the UK effectively makes use of its new options, the consesquence will be that the barely hidden political gap between the UK and continental Europe is likely to widen. The flip side of this general trend to lesser symmetric integration may be that the Eurozone affirms its status of the core of Europe. Political dynamics to establish the currency zone also as a political Union are yet to follow. The UK, with its newly demonstrated interest to opt-out from policy fields, will be less and less able to prevent a further institutionalisation and deepening of the Eurozone – if this is what the EMU countries decide to go for, of course.

    Sebastian Dullien & Daniela Schwarzer*
    Berlin (Germany)
    Eurozone Watch

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Last Updated ( Friday, 29 June 2007 )
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In memoriam
In memoriam
After a long battle against the disease Franck Biancheri passed away 30th of October 2012, at the age of 51. A great European, a militant democrat, a wonderful person.
Franck Biancheri was founder of AEGEE and founding fathers of the ERASMUS programme. He also was research director of the European thinktank LEAP 2020. In 2005, following the no of the Dutch and French to the Constitutional Treaty, Franck Biancheri founded the European citizens movement Newropeans.