by Frank Schnittger
Wed Sep 14th, 2011 at 12:03:39 PM EST
Angela Merkel has several times remarked that a new Treaty is required to prevent a recurrence of financial crises like the current one. Many economic commentators point to Eurobonds as an essential part of any solution. The German Constitutional Court appears to have ruled out the issuance of Eurobonds without specific approval by the Bundestag. This implies that the issuance of Eurobonds is beyond the scope of current European Treaties as such Treaties are subject to adjudication by the European Court in Luxembourg, not the German Constitutional Court.
Not so long ago we had an attempt to create a new Constitution for the EU. This eventually boiled down to a much reduced Lisbon Treaty which was ratified, not without some difficulty, by all member states. The Lisbon Treaty was at first rejected by the Irish electorate in a low turnout referendum in 2008. After much political manoeuvring, it was eventually passed by a second referendum in 2009. Opponents castigated it for representing the thin end of the wedge of a new European Superstate.
In reality, the Lisbon Treaty represented no such thing. It made some minor adjustments to governance rules to reflect the fact that the EU had expanded to 27 Member states. In fact, even before it been ratified, it was rendered almost entirely irrelevant by the global financial crisis which erupted in 2008. What difference have the new powers for the European Parliament made? The power of Petition contained in the Treaty has not even been implemented. Has the European Council become any more effective with the appointment of a full time President of the Council?
Instead we have seen the usual fragmented, uncoordinated, shambolic lurching from one phase of the crisis to the next with European institutions largely sidelined whilst a dysfunctional Merkel/Sarkozy national leadership partnership struggles to achieve any kind of coherent policy analysis, never mind an effective solution.
The jury is out as to whether or to what degree a new Treaty would actually be required to issue Eurobonds with the Barroso Commission due to publish its proposals for Eurobonds soon
- some of which are said not to require a new Treaty. However the jury is also out as to whether Eurobonds would be an effective or sufficient response to address the current crisis. Most economic commentators agree that much more fiscal integration between Eurozone member states would also be required. Whilst much of this may be possible through inter-Governmental cooperation and coordination without requiring a new Treaty, many go further and insist that, for example, Greece should not receive further "bail-out" funds without much more intrusive interventions in its economic and political sovereignty.
Of course many also have much more fundamental objections to the Euro and how it has been constituted. Scepticism about the Euro used to be confined largely to British Eurosceptics and monetarist economists. However I have been surprised at the degree to which Modern Monetary Theorists and neo-Keynesians like Krugman have also argued that the Euro is fundamentally against the interests of many of its members, and particularly against the interests of its more peripheral members.
The gist of those objections seems to be largely that monetary Union without a large degree of political, economic and fiscal integration is simply not possible without the systematic impoverishment of more peripheral Eurozone economies. The catastrophic imposition of austerity on an increasingly wide range of members appears to bear this out, although it should be noted that non-Eurozone members including the UK and the USA are also implementing austerity policies for a variety of different reasons.
The underlying dynamic may have much to do with a secular decline of "Western" economies generally, the rising costs of increasingly scarce energy and other strategic commodities, the increasing disparity between rich and poor in almost all western societies, and the ongoing globalisation of capital, which, through the medium of sovereign debt and other markets is increasingly able to dictate domestic political policies regardless of the democratic mandates of the Governments currently in power.
The question of whether a new EU Treaty is required is therefore not just a technical one - to address lacunae in current Treaties which prevent the formulation of effective EU policy responses to the crisis. It is also a strategic question as to how democratic societies can reassert control over their economic destinies in the face of increasing global corporate and market forces which appear to inexorably extract resources from the majority to the benefit of a smaller and smaller ultra rich minority.
There is no doubt that the failure of EU institutions and Governments to effectively address the crisis has also resulted in a popular crisis of faith in those institutions. It is hard to think of a worse political time to attempt to draft and secure ratification for a new Treaty. The insulting manner in which Sarkozy and some other EU leaders like EU energy commissioner Guenther Oettinge have treated the Irish people in response to the Irish people bailing out the French, German, and British banks which made bad lending decisions to Irish based banks means that many Irish people would probably oppose any new EU Treaty almost as a matter of principle.
A growing perception is that the EU, and particularly the ECB, is now being run for the sole benefit of the financial elites in core EU member states. It would take some Treaty to redress that imbalance and persuade many people to vote for a new Treaty once again. However there is also a great deal of residual goodwill toward the EU, and a conviction that current global problems require global solutions, and failing that, at least solutions at a broader European level.
No doubt any debate on any new Treaty, were it to get off the ground, will be dominated by EPP parties and "Austrian" economics. There will be much talk of ensuring that "errant" member states like Greece can be brought to heel and effectively taken over if they misbehave again. Mechanisms will be sought whereby local (National) democracy can be formally abrogated to ensure that the interests of the Euro financial elite are secured and advanced. European "integration" may come to mean something similar to a Euro dictatorship driven by Germany and France.
But it need not be so. There is also a progressive case for greater European integration allied to greater democratic transparency and accountability. So before the "Austrian" economists monopolise the debate, perhaps we should set the ball rolling by thinking about what a progressive new EU Treaty should contain.
Clearly any such Treaty will have no chance of being ratified in such disparate polities like Germany, France, Ireland and Greece unless it addresses some pretty fundamental problems with our current institutions - the ECB mandate would have to be widened beyond using interest rates to control inflation for example. There would also have to be a clear articulation of why it is in the interests of German "taxpayers" to ensure a stable and functioning EU and Eurozone as a whole. It can be taken almost as a given that traditional Eurosceptic powers like the UK and Czech Republic will not wish to be part of any new Treaty embodying further integration mechanisms. So what we are probably talking about is an explicitly two speed Europe with the faster tier centred on surviving Eurozone members.
So what elements should a new Eurozone Treaty contain?
Here are some suggests taken from my earlier comment:
1. A euro wide legal framework for bank restructuring in the event of failure to abide by Basel III capitalisation requirements - specifically ruling out taxpayers as guarantors of last resort - and making adequate provision for currency risk and a harmonised hierarchy of risk sharing amongst investors..
2. Fiscal harmonisation between member states
3. Policies and institutions specifically designed to combat structural/regional - e.g. trade - imbalances
4. Eurobonds and other financial instruments to capitalise on economies of scale and a stable Euro's increasing status as a global reserve currency.
5. European Bank regulation and dismemberment of TBTF banks
6. A fuller remit for the ECB providing for full employment and productivity/income equalisation as well as asset and consumer price inflation control
7. A Tobin tax to disincentivise speculators and other incentives to create volatility or game the system
8. Social harmonisation (health/education/social welfare) between member states
9. Environmental, infrastructural, and Energy investment fund
Keep dreaming you might well say. However if we let EPP leaders and Austrian Economists make all the running in the discussion of a new Treaty, we cannot be surprised if the outcome is very disappointing from a progressive point of view. I would be interested, however, in hearing why key voting blocks within EU Member states should oppose or support any such proposals, and in how we can make the case that a progressive reform of EU Treaties is in the interests of a majority in all member states.