Political Union and the Legitimacy Challenge

Abstract

For the first time the EU has reached not just a stopping point, but a possible turning point. The Brexit decision has only made this more evident. Using the current crisis for a ‘great leap forward’ towards ever closer ‘political union’ hardly seems realistic, even in the absence of the notorious British opposition. Even the member states that are most ardently calling for a ‘political union’ do not agree on what that should actually mean. Using the examples of France and Germany and their seemingly identical calls for a ‘fiscal union’ of the eurozone, this article shows that the two countries have contrasting interpretations of what such a union should do, and how. Both the French ideal of a voluntarist ‘economic government’ of the eurozone and the German model of a rules-based ‘economic constitution’ would require substantial changes to the EU treaties, for which there is no real hope of democratic consent. The legitimacy challenge has thus become both more urgent and more difficult to overcome.

Introduction

The EU has good reasons to celebrate its first 60 years—or at least most of this period. It has promoted peace, democracy and cooperation among its members and created the world's largest single market. The seemingly unidirectional process of ever further enlargement and ever further deepening of the Union, however, has been thrown into question by the UK's decision to leave and the rejection of EU decisions (e.g. on migration) and rules (e.g. on fiscal discipline) in several member states.

Meanwhile, EU officials in Brussels are struggling to produce a coherent position on how to achieve a ‘political union’ or a ‘fiscal union’ for the EU or the eurozone. The big national players, France and Germany, both have their ideas. But these ideas are mutually incompatible. And both ignore the fact that giving far greater powers to Brussels is unpopular and, in the case of Germany, may be unconstitutional. Against this backdrop, this article offers more general thoughts on the limited and increasingly depleted resources of ‘input legitimacy’ and ‘solidarity’, on which a European political or fiscal union would ultimately have to rely.

The Brussels roadmap: many options, many unions, little unity, little clarity

President of the European Commission Jean-Claude Junker is right to complain, including in the newest White Paper (European Commission 2017), about national governments using the EU as a scapegoat for failures of their own making, thereby creating a ‘mismatch between expectations and the EU's capacity to meet them’ (European Commission 2017, 13). He has thrown down the gauntlet by offering five alternative scenarios: (1) ‘Carrying On’, (2) ‘Nothing but the Single Market’, (3) ‘Those Who Want More Do More’, (4) ‘Doing Less More Efficiently’, and (5) ‘Doing Much More Together’. As was to be expected, the short Rome declaration of the European Council (2017) did not fully endorse any of the five options. ¹

1

Only option two was clearly rejected by most. This comes as no surprise since it was framed as a regressive ‘neo-liberal’ idea in a very incoherent way from a market-liberal point of view: it was suggested that free trade in services, the control of state subsidies and free trade abroad would not be part of the ‘single market’ option. See Wohlgemuth (2017) for a critique.

Interestingly, only the last option explicitly referred to the ‘Five Presidents’ Report’, Completing Europe's Economic and Monetary Union (Juncker et al. 2015). And it is only here that the White Paper refers to the ‘risk of alienating parts of society which feel that the EU lacks legitimacy or has taken too much power away from national authorities’ (European Commission 2017, 24).

The ‘Five Presidents’ Report’ sets out four areas where eurozone integration should be deepened: economic union, financial union, fiscal union and political union—all of which are to be completed in three stages and by 2025.

On economic union, the five presidents note correctly that the EU single market is not yet complete in key areas such as services, energy, the digital economy and capital markets. There is plenty of potential here for triggering growth within the remit of the core competences of the EU.

On financial/banking union, the presidents’ paper focuses on developing a common deposit insurance scheme, something which is fiercely opposed by Germany. It also launched the ‘capital markets union’, which is intended to open up more diverse sources of financing to small and medium-sized businesses. ‘Ultimately’, the report says, this will require ‘a single European capital markets supervisor’ (Juncker et al. 2015, 12).

The five presidents are more cautious and nebulous in their proposals for a fiscal union than the four presidents were in their report in 2012 (European Council 2012). Even so, it remains the most controversial part of the initiative, since it envisages establishing a ‘fiscal stabilisation mechanism’ to make another fiscal back-stop available, and a ‘European Fiscal Board’ to evaluate the implementation of EU fiscal rules. The idea of euro bonds or a debt redemption fund seems to have been shelved, or perhaps just renamed, since the report deems ‘a pool of financing sources’ useful (Juncker et al. 2015, 5). It would be ‘tapped into according to the business cycle’ (Juncker et al. 2015, 15)—or, more probably, according to availability and political opportunity.

The chapter on political union is even vaguer. It correctly states that ‘greater responsibility and integration’ at the EU and euro area levels should come with ‘greater democratic accountability, legitimacy and institutional strengthening’ (Juncker et al. 2015, 17). But in terms of a ‘plan D’ (for democracy), there are no specifics at all. Instead this chapter hints at the establishment of yet another new institution: a ‘euro area treasury’, which perhaps, someday, would take ‘some decisions’ in fiscal policy (Juncker et al. 2015, 18).

Most tellingly, but understandably, the report avoids addressing which steps would require changes in EU treaties. Everyone knows that negotiations on EU treaty changes would open a Pandora's Box of endless disputes. Any new treaty that transferred more power from national governments to the EU would run into trouble in national parliaments and would be likely to fail in almost any national referendum.

The Berlin/Paris bifurcation: economic government or economic constitution?

Nevertheless, the discourse on political and fiscal union has also intensified in Paris and Berlin. But while officials on both sides of the Rhine agree that greater integration is needed, their ideas on how to go about it are far from similar.

Paris (consistently represented by the proposals of Nicolas Sarkozy, François Hollande and Emmanuel Macron, despite their differing political colours) wants an ‘economic government’. This concept boils down to the mutualisation of public debt, more fiscal activism from the European Central Bank, a common EU or eurozone tax authority, a common eurozone budget, a common eurozone unemployment insurance and a common deposit insurance. They also want EU industrial policy to focus more on picking European (read: French) industrial champions and protecting (French) losers from global competition. Instead of binding legal commitments, France favours political discretion and intergovernmental acts of political will—legitimised or driven by a eurozone parliament—to decide how to spend the money raised from common taxes or mutualised eurozone debt instruments.

Berlin (consistently represented by its Finance Minister Wolfgang Schäuble) prefers an ‘economic constitution’ to an ‘economic government’. Berlin wants binding balanced budget rules or ‘reform contracts’ that would be enforced through automatic sanctions or by independent agencies following strict criteria. This would follow the very German idea of ‘Ordnungspolitik’—a governance structure that aims to bring both governments and market actors under the rule of law. In addition, Schäuble also wants to install something similar to a eurozone ‘finance minister’. However, raising and spending European taxpayers’ money or issuing joint euro bonds would not fall within the minister's remit. Instead, he or she would have the power to override national finance ministers—and even parliaments—if they were to break the rules.

Both the French and the German proposals go far beyond those in the ‘Five Presidents’ Report’. Instead, they depict more radical visions of a federal European state, but of two very different kinds: a centralist political structure for ‘planification’ or a legal framework for an open market economy. ² Both concepts would require changes to EU treaties that the member states would have to approve unanimously. But it is inconceivable that all 28 (soon to be 27) EU countries (or even the 19 eurozone members) would rally around one or other of the proposals.

2

See Brunnenmeier et al. (2016) for a comprehensive historical analysis showing how Germany saw the Maastricht Treaty as a set of binding rules, whereas France saw the euro as a political instrument that was to be overseen by governments.

Constitutional conundrums

When it comes to a substantial transfer of national sovereignty to Brussels, it would not only be disagreement amongst national governments and negative public opinion that would erect formidable obstacles. The German Federal Constitutional Court (FCC) would also have a say. It has repeatedly stated that the EU cannot become a federal state while the German constitution remains in effect. For the EU to become a ‘true political Union’, Germany would have to replace its 1949 constitution with a new one. At the time when the single currency was decided upon, Germans were not asked if they wanted to give up their Deutschmark. However, something that they are less inclined to abandon is their cherished constitution.

At the core of the constitutional argument is the link between democracy and the sovereign power to tax. The FCC has frequently insisted that German taxpayers’ money cannot be raised and spent by third parties beyond the control of German parliaments. ‘No taxation without representation!'—the American Revolution's most famous slogan— is also deeply enshrined in the German constitution. In 2012 the FCC said:

• A necessary condition for the safeguarding of political latitude in the sense of the core of identity of the constitution… is that the budget legislature makes its decisions on revenue and expenditure free of other-directedness on the part of the bodies and of other Member States of the European Union and remains permanently ‘the master of its decisions’. (Germany, FCC 2012, Rn 109)

Reference to the European (or a new eurozone) Parliament will not help move the red lines drawn by the court, since then another core democratic principle would have to be invoked: that of ‘one man, one vote’. The vote of a Maltese citizen carries more than 11 times more weight than that of a German in European elections. In a parliament with such far-reaching powers, this imbalance would no longer be sustainable. This is another point already made by the FCC in 2009 (Germany, FCC 2009, Rn 280): ‘the European Parliament is not a representative body of a sovereign European people. This is reflected in the fact that it is designed as a representation of peoples in the respective national contingents of Members, not as a representation of Union citizens in unity without differentiation, according to the principle of electoral equality’.

If a truly democratic ‘one-man, one-vote’ European Parliament wanted to mirror the national party proportions of smaller states at least somewhat, as it does now, the number of Members of the European Parliament would have to increase by a factor of 10, to over 7500.

Even EU federalists would find such a system ludicrous. They would need a pan-European party system in which voters would cast their ballots for parties whose leaders were from different countries and spoke different languages. Parties would also have to offer coherent, Europe-wide political platforms that offered clear alternatives. But this would take decades, as would the more fundamental prerequisites: pan-European debates, pan-European media and thus pan-European public opinion or even some sort of ‘European identity’. Present trends point rather in the opposite direction. Attempting to implement a radical political union in this environment, and hoping that a European ‘demos’ miraculously appears, is putting the cart before the horse and threatens a collapse of the Union as a consequence of overzealous overstretch.

Sovereignty and legitimacy issues

Last year, as many remembered Winston Churchill's (1946) famous ‘Zurich Speech’, it was noted that his vision of a ‘United States of Europe’ has been realised beyond expectations, but also lost its allure. Churchill himself never thought that the UK would become a full member of the United States of Europe. Margaret Thatcher strongly campaigned to join the European Economic Community in 1975. And now it seems that the UK (a majority of its voters) wants to leave the EU because of concerns that they are no longer ‘masters of their own destiny’ (with national borders and national jurisdiction). Similar concerns hold—and perhaps even more so—for other member states, such as Greece or France. ³

3

Pew Research Center (2016) found that unfavourable views of the EU are held by 71% in Greece and 61% in France (compared with 48% in the UK).

The EU's 2017 White Paper (European Commission 2017, 24) is therefore right to attach to its scenario of ‘Doing Much More Together’ the caveat of a ‘risk of alienating parts of society which feel that the EU lacks legitimacy or has taken too much power away from national authorities’. As long as the single market could be regarded as the core of economic integration, mutual gains from trade and joint commitments, so-called output legitimacy, sufficed. As the currency union now describes the ‘hard core’ of Europe that requires further steps of ‘positive integration’, the situation is very different. Now ‘input legitimacy’ is needed: the explicit consent of governments and citizens to an agreed way forward which involves giving up national sovereignty. For this, the EU, or at least the eurozone, will have to be able to exploit or develop two political resources: legitimacy and solidarity.

Graf Kielmansegg (2016) defines these resources as follows (my translation):

• The EU commands legitimacy resources to the degree to which the European peoples award it the right, or at least do not dispute its right, to legislate on behalf of all member states and their citizens. Solidarity resources are at the EU's disposal to the degree to which the European peoples are ready to accept or at least endure redistribution at their own expense beyond the borders of the nation state.

Kielmansegg states quite correctly that the scarcity of these resources has been gravely underestimated since the Maastricht Treaty and that these key resources have now been exhausted, not least as a consequence of the euro crisis. The challenge of legitimacy and solidarity has been ignored for too long. Now it has become both more urgent and more difficult to overcome.

Towards an ever more flexible Union

Until recently politicians, academics and the media on the Continent have held on to the belief that the EU has always been a ‘political project’ and would necessarily lead to ‘ever closer Union’ and finally to some ‘kind of United States of Europe’. However, the existential crisis of the currency union should have proven that undertaking an economically dubious and risky operation as a ‘political’ project managed on the basis of political criteria can all too easily lead to failure.

The Commission was therefore right to offer alternative scenarios in its outline of the future of EU integration in the White Paper, including the options of ‘doing less more efficiently’ and ‘those who want more do more’. The ‘ever-closer-one-size-fits-all’ project has alienated many citizens from the EU (Wohlgemuth 2017). They see their lives as regulated by a political machine that they cannot democratically hold accountable. Political leaders in member states and EU institutions have started to acknowledge this problem. Hence this year's Rome festivities and the Rome declaration were not marked by exuberance, but by a healthy dose of realism and pragmatism.

Indeed there can and should be more flexibility—but mostly in fields outside the ‘core’ of the European project, that is, outside of the single market, the common trade policy and the common currency. However, even in these other areas (which include the social union, tax harmonisation and the defence union), a ‘two-speed Europe’ is not the most convincing form of flexibility. This model takes for granted that there is a common destination agreed by all, which all members states want and will reach at some stage. An ‘ever-closer-one-size-fits-all-sooner-or-later’ option is not really preferable to genuine ‘variable geometry’, where different countries—‘the willing and able'—engage in mutual integration in different policy areas. These forms of cooperation could also be open to non-EU members (e.g. single market access, foreign and defence policies, domestic security, anti-terrorism). Europe would again live up to its motto: United in Diversity!

Conclusion

For the governance of the eurozone, political and economic divergence poses an enormous problem that cannot be accommodated by legal ‘flexibility’. There has to be some agreement on rules that are applicable to all members of the currency club. ‘Multi-speed’ does not work here—there needs to be a much higher degree of economic and political cohesion than one can find today. The problem is that there is no consensus on a European monetary, fiscal and social model, and the legitimacy and solidarity resources needed for a political or fiscal union have been exhausted.

Europe is at a crossroads. We have been hearing this since the foundation of the European Communities, but this time the metaphor is more justified than ever. In the long run, ‘more of the same’ would work as little as ‘back to the beginning’. However, easy escape routes are also blocked. Just one thing seems clear: there is no convoy of 28 (or soon 27) member states willing or able to rush towards any ‘political union’ destination scenario. This may be regrettable, not least for geopolitical reasons. In terms of more modest steps forward, it would be welcome if at least some of the reforms as laid out in the ‘Five Presidents’ Report’ could help to stabilise the eurozone. Realistically, further steps of EU integration should be driven by, but limited to, as Churchill (1946) said, ‘those who will and those who can’.