John Weeks – Bring Democratic Choice to Europe’s Economic Governance

John Weeks criticises the economic policy of the EU, which has been harmful for millions of its citizens, as well as the democratic deficiencies in the EU institutions responsible for this development.

John Weeks is Professor Emeritus of Economics, SOAS University of London, & editor for Progressive Economist Group.

Dysfunctional Union

The European Union should be a force for peace, prosperity and social progress.  It has many positive achievements to its credit, including support for democratic values.  But in recent years several negative developments, the global financial crisis followed swiftly by the euro zone crisis, have highlighted the problems caused by the Treaties concerning economic policy. The structure and operation of the Euro, especially when confronted with financial and economic crisis, have given rise to severe instability.

Despite its commitment to democratic values, the EU treaties do not permit democratic choice on the most important economic policies of member governments.  Because so much of the economic policy of the EU is embedded in its Treaties and changing these requires agreement of all member states, there is growing frustration that changes cannot be achieved.  Much of the recent popular discontent, leading for example to the Brexit Referendum decision, is based on the refusal of the EU leadership to accept that its economic philosophy and policies are in many respects harmful.

This restriction of choice in economic policy and its serious political and economic consequences prompted me along with a British lawyer Jeremy Smith to carry out an analysis of treaty changes to facilitate more democratic economic governance and as a consequence a more democratic Union.  Central to our report (funded by the Rosa Luxemburg Foundation) are specific treaty changes to replace existing text.  In the second part of the study we provide the economic justification for these changes.

Serious Reform Needed

In the wake of the Brexit referendum and with the Greek government once more the possibility of a forced Grexit, the limitations of EU governance loom large. Rather than bidding Britain a sad and reluctant adieu, “wayward sister go in peace”, some EU leaders seem intent on making the separation as expensive and unpleasant as possible. Very much in the same vein, EU finance ministers, especially Germany’s Wolfgang Schäuble, appear content to apply in Greece the well-worn principle, if a policy does not work, try it again and expect a different outcome.

Our study contributes to the gathering commitment among European progressives to rekindle the progressive origins or European cooperation and forward to a democratic Union.  A certain Brexit and continued austerity demonstrate the degeneration of both leadership and governance in the EU. The Union began as a voluntary association of countries whose governments sought to ensure peace and cooperation in a Europe long racked by conflict. Improbable as it might be, the current leaders have dedicated themselves to a vendetta against any member government that dares question the mal-governance enshrined in the EU treaties, and wreak vengeance on any member that might leave.

EU leaders seem to have missed the obvious point in both Britain and Greece.   The British government did not choose to exit the Union, 52% of those voting did. The Conservative government is merely the agent attempting, with questionable competence, to administer that exit. Similarly, it is not the Greek government but Greek taxpayers that would pay down the public debt were it possible. The Syriza government is but the agent trying to implement that unachievable task.

Failure to distinguish between representative governments and the people that elect those governments reveals not only the limited imagination of EU leaders but also the Union’s codified governance framework. That framework minimizes democratic processes by shifting policy design and implementation from elected institutions to the European Commission.

National governments hold the formal power to determine the economic policies affecting their citizens. However, treaty-based conditions constrain national policy choices, especially for members of the eurozone. These constraints have a dubious relationship to the Union’s founding values, and are technically flawed. As a result, attempts to implement them undermine the confidence of citizens that the Commission and the Parliament serve their interests.

The treaty-based constraints on economic policy do not satisfy the generally accepted principle that popularly elected representatives determine policies that affect the livelihoods of citizens. Instead, the treaties have adopted a restricted form of “democratic accountability”.  An obvious case is the Treaty on Coordination, Stability and Governance (TCSG) that codifies this retreat from democratic procedure.

It elaborates a “macroeconomic imbalance procedure”, which includes “corrective action plans which may be imposed on countries under the excessive imbalance procedure (EIP)” (emphasis added). This official choice of words is chilling (at least in the English version). Use of the passive voice obscures the fact that, in reality, the Commission “imposes” the “corrective” policies on a national government, not a “country”.

This imprecise use of terms, within a treaty otherwise meticulous in choice of words, signals a lack of appreciation of democratic procedures. In a further sign of the treaty’s governance perspective, the Commission assigns this fiscal regulation, so fundamental to the lives of citizens, to the “business-economy” section of its website (about half-way down on the left under “Economic and fiscal policy coordination”). This categorising betrays that the Commission views economic policy as an apolitical issue.

The treaty does not require the Commission to seek approval of MEPs (much less national parliaments) before initiating a “macroeconomic imbalance procedure” for a country (Five Presidents Report, page 8). The Commission is merely instructed to report to the Parliament on all its activities, and in principle MEPs could reject specific actions. Only in this limited sense is EU-level policy making “accountable”. Because the form of accountability involves reporting to an elected body, the adjective “democratic” may appear appropriate.

However, there is a substantial difference between policies designed and enacted by a democratically elected legislature and granting an executive body power to formulate policy subject to post-decision legislative “accountability”. The former allows for division between democratic policy-making and implementation of policy. In the latter, the executive body takes on both discretionary policy-making and execution, with the legislative body left to judge the executive action as appropriate or inappropriate after the event.

In practice a negative assessment of executive action is functionally equivalent to censuring the Commission. It should come as no surprise that the EU Parliament not approving Commission actions is extremely rare. A clear separation between policy-making and implementation could reduce potential for confrontation between the Commission and Parliament.

The nature of the rules on economic policy in the EU treaties makes the powers granted to the Commission extremely problematical. The treaties are the de facto EU constitution. They legally bind national governments and cannot be altered by national legislatures. Unlike many if not most constitutions, EU treaties compel member governments to adhere to specific economic behaviour and assign enforcement to an executive that is not popularly elected. The fiscal rules, first codified in the Maastricht Treaty, provide obvious examples of inappropriate constitutional detail in the form of targets for fiscal budgets and public debt.

Placing detailed rules in a constitutional document is unwise for many reasons. The rules may be incorrectly specified, containing technical errors that require changes for logical and internal consistency. I detailed the technical flaws in the fiscal rules in another article.  Simple wording changes in treaties would eliminate these errors, but any such changes require approval by every government party to a treaty.

Rules may be appropriate for some economic conditions, but not others. If the wording of treaties does not allow for changes in economic conditions they can be dysfunctional. Attempting to specify the conditions when a rule such as deficit limits applies, risks making treaties unmanageably complex. Assigning the implementation of detailed rules to a non-elected institution such as the Commission exacerbates the problems of the misspecification of rules. Assigning decision-making to the Parliament would result in open public debate; granting the Commission that role makes the process non-transparent.

Through a succession of treaties over six decades, the governance of the Union changed profoundly, moving toward a system that assigns increasing power to the executive. As France demonstrates, democratic society is consistent with a strong executive, albeit with an important caveat: the executive should be popularly elected and the Commission is not, nor are the “Five Presidents” to the EU posts they hold.


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