Engaging with the New European Economic Governance Architecture - Half-Day Conference
This half-day conference brought to a close the Reforming European Economic Governance series, sponsored by the European Commission and the Cardiff School of European Languages, Translation and Politics at Cardiff University, organised in association with the Learned Society of Wales. The conference brought together speakers from a variety of backgrounds to consider both the short and long-term challenges for the UK and Wales created by the reform of European economic governance arrangements. These discussions were framed within the context of identifying potential lessons from how other EU Member States have responded to these challenges. This brief report provides an overview of the half-day conference which took place on 2nd May 2012. The Conference was made-up of an initial session featuring papers from academic speakers, a keynote address and finally a roundtable featuring Welsh MEPs.
Key lessons in capturing the ‘Elusive Prize’
Professor Kenneth Dyson
Professor Kenneth Dyson, Cardiff University, opened the half-day conference with an extended presentation which drew together the key themes from across the series. Professor Dyson observed that the series had provided high quality, informed debate and that Universities provided a useful ‘neutral ground’ for debate which was relatively free of institutional and political constraints. He argued that any attempt to consider the prospects of European economic governance and the future of the Eurozone needed to move beyond the ‘tyranny of the here and now’ and that it is only with hindsight that we can identify those ‘defining moments’ of European integration which ‘condemn vainglorious forecasts to the dustbin of history.’ Professor Dyson identified seven key lessons which had been highlighted by the series.
- Achieving sustainable European economic growth
Firstly, the main prize of European integration – the promise of sustainable European economic growth, buttressed by the single market and currency – had proven an elusive prize. A range of problems continued to undermine attempts to achieve this goal, including the sovereign debt crisis experienced by a range of Member States, the reduced capacity of the European Union to compensate losers in processes of economic adjustment and political opposition from both the right and left to the prize itself.
- Design flaws
The second key lesson centred on the inherent flaws in the design of the Eurozone prior to the financial and economic crisis. Professor Dyson argued that the absence of economic and fiscal union to accompany monetary union had exacerbated the crisis and that the crisis prevention and management mechanisms built into the system were weak, ‘Potemkin-like’ structures. Further, recent attempts to strengthen such mechanisms through measures such as the European Stability Mechanism, Six Pack and Fiscal Compact, may prove to be ‘too little, too late’.
- Membership-related problems
The third lesson centred on the membership of the Eurozone and in particular the weakness of the original Maastricht convergence criteria. Professor Dyson argued that the criteria only provided a snapshot of convergence and failed to provide robust evidence that states had the capacity to maintain the monetary union. The arrangements made it too easy for Member States, such as Greece, to fudge their statistics in order to get into the Euro without proving their capacity in terms of taxation, control of expenditure and efficient and proper use of public funding.
- Failure to address imbalances
The fourth lesson identified by Professor Dyson focused on the absence of mechanisms to correct excessive imbalances between States in terms of their current accounts derived from different rates of growth and competitiveness. He noted that the key challenge for the Eurozone was the continued dependence of states with deficits on ‘potentially unsustainable capital flows’ from creditor states, such as Germany and Holland.
- Multi-speed Europe
The fifth lesson centred on the increasing multi-speed nature of European integration driven by the economic reform agenda. This raised important questions for states outside of key governance arrangements, such as the UK and Czech Republic. On the one hand some commentators have argued that these states can ‘punch above their weight’ in influencing the decision-making agenda by highlighting effective policies, but on the other critics have argued that it is necessary to have a seat at the table in order to influence decision-making.
- Weakness of markets
The sixth lesson emphasised that the EU and more specifically the Eurozone were not the primary authors of the economic and financial crisis. Rather the roots of the crisis lay in the ‘wider global systemic problem of increasingly destructive financial manias, panics and clashes.’ Professor Dyson argued that the history of capitalism and markets has been the history of ‘bursting bubbles’ - exacerbated in the contemporary context by a fixation on short term economic gains and regulatory capture.
- Sui Generis nature of the Eurozone
The final lesson from the crises identified by Professor Dyson was the unique and unfamiliar nature of the Eurozone. He noted that the Eurozone lacks many of the policy levers available to sovereign states in managing debt and faces a range of challenges, notably the level of mistrust and lack of identification with the Euro. Further, the Eurozone remains highly dependent on Germany’s strength and it’s acceptance of wider Eurozone liabilities.
The Central and Eastern European Persepctive
Professor Béla Greskovits, Central European University, provided an overview of the response to the European economic and financial crisis by Central and Eastern Europe States and in particular drawing on the experiences of Hungary. He explained that the Hungarian Government’s approach towards the EU adopted by the Hungarian Government could be characterised as somewhere between the highly critical stance demonstrated by the Czech Republic and the enthusiastic support provided in Latvia. Despite the landslide victory for Viktor Orbán’s centre-right Fidesz party in the 2010 parliamentary elections – enabling the party to pursue major constitutional reform – attitudes to European integration varied across Hungary. Professor Greskovits explained that Hungary’s approach was characterised by several themes – i) general participation in new European Treaties albeit at times reluctant; ii) a conscious attempt to undermine independent economic checks and balances; and iii) very strong anti-EU rhetoric in domestic politics. In contrast to the Czech Republic and Latvia, Hungary provided a complex case, for example, opting out of the Euro Plus Pact but driving the completion of the Six Pack reforms under the Hungarian Presidency of the EU Council.
Professor Greskovits reflected on the position of Hungary and why it had not replicated the enthusiastic supporter (Latvia) or staunch critic (Czech Republic) approaches seen elsewhere in Central and Eastern Europe. He noted that there were strong arguments for either approach – Hungary was unlikely to reach the Maastricht but had much to gain from being in the Eurozone as a ‘sinner’ Member State. Further, Hungary was characterised by a split in public attitudes between a small but vocal anti-EU audience on the right and a much larger pro-EU audience. Therefore the Hungarian Government faced a number of scenarios in placating these opposing audiences as the crisis continued. Professor Greskovits argued that a best case scenario would be an approach of accommodation – the anti-EU electorate would be satisfied but European integration would still be institutionalised. In contrast, the worst case scenario could lead to a position where the government’s approach was criticised by both pro and anti-EU camps, fundamentally undermining the government’s position. Professor Greskovits concluded by noting that similar debates were being played out across Central and Eastern Europe but that the context was key in shaping the experiences in each state.
Economic Governance: A Basis for Growth?
The Conference’s keynote address was provided by Jonathan Scheele, the European Commission’s Head of Representation in the UK. Mr Scheele began by noting that the origins of the crisis were not the direct result of anything that the EU or Eurozone had done but rather lay in the US. Nevertheless, the crisis had exposed the flaws in the initial design of the Eurozone governance architecture and it was quickly apparent that the Eurozone as established by the Maastricht Treaty ‘was not fully up to the job’. However, he noted that there was no single Eurozone problem and although Member States may share some common characteristics, such as the property bubbles in Spain and Ireland, each Member State had its own specific problems created by the crisis.
In terms of the economic governance reform agenda, Mr Scheele explained that measures such as the Fiscal Compact Treaty were really about ‘putting the E into EMU’ and giving teeth to existing mechanisms like the Stability and Growth Pact. A key element which underpinned these reforms was the recognition that ‘economic policy is genuinely something where there is a need to have a coordinated approach’ and the era of ‘excessive deference’ and a reluctance to criticise fellow Member States was over. However, Mr Scheele noted that although ‘there is a great emphasis on fiscal stability as a necessary condition for moving forward’, such measures alone were insufficient and needed to be combined with sustainable growth. He provided an overview of the five key priorities identified by the European Commission’s Annual Growth Survey, including growth friendly fiscal consolidation, restoring normal lending and the promotion of growth and competitiveness. A key challenge in delivering this agenda remained the relative importance of these priority areas across different Member States. Further, the key policy levers were situated at various levels of governance – European, national and sub-national – and this was further complicated by the differentiated nature of European governance arrangements dictated by states ‘opting-out’ of different parts of the governance architecture.
Mr Scheele concluded by considering the position of the UK within the EU and noted that due to the UK’s position outside of the Eurozone, the ‘European Semester’ has less of an impact than elsewhere in the EU. However, as part of Europe 2020 agenda the European Commission is currently processing the UK’s National Reform Programme 2012 which will provide country-specific recommendations. He explained that this process was not ‘rocket science’, for example, last year’s recommendations for the UK included fiscal consolidation, reducing workless households and boosting funding for small and medium-sized enterprises (SMEs). Mr Scheele argued that the UK was not that far apart from the Commission and was generally the same as many other Member States in the sense that ‘no finance Minister…particularly likes anybody from outside second guessing their policies.’ He concluded by stressing the need to not become obsessed by the Eurozone crisis but to look beyond it, for example, to completing the Single Market and supporting innovation.
The final roundtable session of the conference featured short statements from three of Wales’ MEPs followed by a lively question and answer session. The first contribution was made by the Conservative MEP, Kay Swinburne, a member of the European Parliament’s Economics and Monetary Affairs Committee and the Special Committee on the Financial, Economic and Social Crisis. Dr Swinburne stated that there was a common concern within the whole of the EU to recognise the importance of interdependence and that ‘if you do one thing in one Member State, you have to be aware of it having a knock on effect on the overall EU and therefore you have to have some form of accountability to your partners in this Union.’ However, in pursuing this agenda she noted that it was important to not forget smaller and non-Eurozone Member States – rather than being simply driven by the agenda of France, Germany or the UK. The European Parliament was characterised as playing a key role in pursuing this agenda as Member States had tended to focus on their own interests where as the Parliament provided a focus for considering the interests of the whole. Dr Swinburne concluded by noting three strands of the combined economic reform and growth agenda - i) fiscal discipline underpinned by properly enforced rules; ii) the use of the EU budget to stimulate growth; and iii) a balanced approach to regulation.
The second contribution to the roundtable was made by the Labour MEP, Derek Vaughan, who began by noting the highly challenging economic and political background against which the reform of European economic governance had taken place. He argued that the UK Government’s approach to the crisis and in particular the decision to not sign up to the Fiscal Compact had led to a very negative perception of the UK amongst his colleagues within the European Parliament. Mr Vaughan stressed that he felt ‘the one thing missing from all of these various initiatives is talk of growth and job creation policies’ and austerity measures had been pushed too quickly in some areas of Europe, notably Greece. He echoed the comments of the Danish Prime Minister that ‘people are willing to make sacrifices but not willing to be sacrificed.’ In his view there was a European-wide problem in terms of job creation and growth, and that although some suggestions existed, such as completing the Single Market, many of the traditional policy tools or levers were unavailable. Therefore the EU may have to explore new options including increasing the EU budget to facilitate growth, exploring project bonds and new financial instruments, considering introducing a Financial Transaction Tax and amending the measures outlined in the Fiscal Compact.
The third contribution to the roundtable was made by the Plaid Cymru MEP, Jill Evans, who explained that she had been trying to write a position paper on European development for the party but due to the fast moving nature of the agenda, it had proven almost impossible. She stressed that the party’s response to the European crisis was underpinned by its commitment to independence and that there was evidence that an independent Wales may have been able to weather the storm just as effectively as the UK. Ms Evans argued that she was supportive but not uncritical of the EU and that it remained ‘a Europe of the Member States rather than a Europe of the People.’ The UK Government’s decision to not sign up to the Fiscal Compact raised two issues for Wales’ relationship with the EU: the UK Government’s lack of engagement with the Welsh Government prior to making its decision and more broadly the primarily intergovernmental nature of decision-making around the Fiscal Compact. She argued that this effectively meant that Wales had been democratically sidelined and that the European Parliament had to play a much greater role in the reform agenda. However, the level of debate within Wales had been very small, despite the importance of Europe for the future of Wales, particularly via structural funds. Ms Evans concluded by emphasising that the only way of restoring confidence within the EU was to balance austerity measures with effective regulation and policies aimed at growth and job creation, therefore aligning the European reform agenda and Welsh national interests.
MEP Roundtable - The Future of the UK and Wales in Europe
Kay Swinburne MEP, Conservative Party
Derek Vaughan MEP, Labour Party
Jill Evans MEP, Plaid Cymru