The rise of the EU's economic government
16 June 2010
David Cameron will tomorrow travel to Brussels to attend his first summit of EU leaders. The most pressing item on the agenda is how to deal with the continuing debt crisis in the eurozone and get Europe's economy back on track. Ahead of the summit, Open Europe has published a briefing outlining recent developments and moves towards what French President Nicolas Sarkozy has labelled an economic government for the EU.
Head of Open Europe's Brussels office, Pieter Cleppe, said:
"The eurozone has already turned into a debt union, with taxpayers in one country now liable for the economic mistakes of a government in a different country. Some European leaders now want to go even further and use the economic crisis to form an EU economic government by stealth - regardless of what voters and taxpayers think."
"The risk is that the UK gets caught in the crossfire and is pressured into an EU-wide economic government that is essentially supposed to solve the problems of the eurozone. But the UK could also use this to its advantage, and decide to work with Angela Merkel, using her demand for Treaty change to ask for EU reforms, such as the repatriation of powers back to Westminster."
"What we are seeing is the contrasting Franco-German visions of the euro at near breaking point. German taxpayers have already been asked to bailout other member states, and the question is whether they will stomach any further incursions on their economic sovereignty in the guise of a French-inspired economic government."
To read the full report, click here:
http://www.openeurope.org.uk/research/economicgovernment.pdf
Key points
· The eurozone is now a de facto debt union, with its members taking on the liabilities of each others' sovereign debts and with the European Central Bank financing states through its purchases of government bonds.
· The legality of the eurozone rescue packages, agreed in the spring, is dubious since they are inconsistent with the 'no bailout' clauses in the EU Treaties. The €60 billion stabilisation fund, for which British taxpayers are liable for around €8 billion, is particularly questionable on legal grounds - and would most likely not survive a test in a non-politicised court. Crucially, it transfers both powers and potentially more taxpayers' money to the EU - both of which the UK Coalition Government has said it opposes.
· At the summit, EU leaders will discuss a proposal requiring member states to submit their national budgets to the Commission and other finance ministers before sending them to national parliaments. The UK Government opposes this, but according to the Commission has no veto over the proposal.
· German Chancellor Angela Merkel, and now French President Nicolas Sarkozy, have said that a change to the EU Treaties might be necessary to achieve stronger economic governance, including tougher sanctions for member states that violate the bloc's budget rules. A Treaty change is likely to come up against resistance but is not off the cards if Angela Merkel spends the political capital needed to push it through.
· UK Prime Minister David Cameron has said he will veto any Treaty change that transfers more powers from Westminster to Brussels. However, rather than being on the defensive, Cameron could work with Angela Merkel and other partners to achieve Treaty changes - but ask for substantial EU reforms in return, including the repatriation of powers back to the UK.
· David Cameron should also work with his EU partners to find sustainable short and long term solutions to the eurozone debt crisis. But these solutions must challenge the eurozone's fundamental problems of low growth and the poor competitiveness of some of its members - more temporary loans will not solve any of these issues. Cameron must make clear to his partners when essential economic reforms are better achieved at the national or global level.
· The nature of the negotiations is likely to depend on the contrasting Franco-German visions of how to deal with the current economic problems.
· France, on the one hand, hopes to move a step closer to its long-held desire for economic government of the eurozone, including the greater harmonisation of all economic policy across its 16 members.
· Germany, on the other hand, is pushing for much tougher budgetary rules for the eurozone, backed by sanctions, but fears the politicisation of economic policy. It therefore wants to water down the French plans for economic government by more loosely applying aspects of them to the entire 27 member states rather than focussing them more tightly on the eurozone members.
Notes for editors
1) For more information, please contact Pieter Cleppe (Brussels) on 0032 (0) 477 684 608, or Mats Persson (London) on 0044 207 197 2333 or 0044 779 94 606 91.
2) Open Europe is an independent think-tank calling for reform of the European Union. Its supporters include: Sir Stuart Rose, Chairman, Marks and Spencer plc; Sir Crispin Davis, Former Chief Executive, Reed Elsevier Group plc; Sir David Lees, Chairman, Tate and Lyle plc; Sir Henry Keswick, Chairman, Jardine Matheson Holdings Ltd; Lord Sainsbury of Preston Candover KG, Life President, J Sainsbury plc; Sir John Egan, Chairman, Severn Trent plc and Lord Kalms of Edgware, President, DSG International plc; Hugh Sloane, Founder, Sloane Robinson.
For a full list, please click here:
http://www.openeurope.org.uk/about-us/supporters.aspx