On Draghi’s “political centre” for the Euro

2015-09-24

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On September 23 Mario Draghi, the head of the European Central Bank (ECB), attended the European Parliament’s Economic and Monetary Affairs (ECON) committee to discuss the latest events in the euro area, in the context of the monetary dialogue.

As is typical of the ECB, Mr. Draghi did not just talk about monetary affairs, but delved into the political debate about the direction of future European integration. His remarks were informed by the mindset of existing regulations on economic governance, in particular the nexus of rules substantiating the European Semester.

There are two particularly interesting quotes from his introductory statement. This is the first one (emphasis is mine):

From our perspective, two elements are of particular importance. First, despite the best efforts of all actors involved, the crisis has shown that monetary union requires a political centre; a centre that can take the relevant fiscal, economic and financial decisions for the euro area as a whole in a swift and transparent manner with full democratic legitimacy and a clear set of responsibilities given to it by the legislators. It is in this spirit that I have called repeatedly for a move from rules-based coordination to sharing of sovereignty within common institutions. The report proposes a euro area treasury as one example. Such ideas now need to be spelled out.

The notion of a “political centre” is quite different from what used to be referred to as “political union”. I think this is a more accurate description of what is actually foreseen in the report of the Five Presidents (on which Mr. Draghi bases his remarks): the centralisation of authority, probably in the office of a super-commissioner for the euro, who will have the capacity to rewrite national budgets and “promote” structural reforms at will. This is what France Economy Minister Emmanuel Macron referred to as “economic government”; a term that was also used by European Commission President Jean-Claude Juncker during his state of the union speech.

I find that this mode of integration deviates from what would be a genuine republic, a constitution-based democracy. This political centre, this economic government, will be envisaged in a new inter-state Treaty and will continue to exhibit the exact same constitutional flaws and constraints as the existing EU architecture. In particular:

• inter-governmentalism: Member States as the contracting parties of such a new Treaty will still be the constitutional subjects of this order, meaning that the European Council, will continue to have the first and final say in the Union. This further suggests that the mandate to the European Commission will yet again come from the top, the European Council, rather than from the bottom, a potential European Demos;
• sovereignty mismatch: because the system will not be founded on a codified corpus of primary law, a constitution, there will be no unified body of citizens capable of directly legitimising the European state’s functions, especially the executive. Rule from the top (state sovereignty) will be strengthened, but rule from the bottom (popular sovereignty) will not, as legitimacy and accountability will effectively remain divided along national lines.
• quasi-permanence: given that the constitutional subjects will be the Member States, there will be no parliamentary method for amending the Treaty. Because of their very nature as international covenants, the European Treaties cannot function as a typical constitution, for no parliament, neither the European nor any given national one, may review them after they enter into force. For a Treaty change to occur, Member States have to agree unanimously.
• three-fold heternomy: all of the above items on this list, imply a de-politicisation of the primary law of the Union, in ways that effectively prevent its normatively primary actors from exercising self-rule. The Union’s heteronomy is made manifest in three distinct ways: (1) the EU “state” cannot change its own primary law, (2) no individual parliament can conduct an ex post review of the Treaties, (3) no given government may deviate from the Treaties, nor proceed with a constitutional reform that would enable it to act in opposition to their scope. The reason such heteronomy is problematic, is that it completely disregards the context in which political life takes place and, thus, prevents the pursuit of genuine alternatives to the methods of the establishment. International covenants can afford to be quasi-permanent because their scope is rather limited. The European Treaties are descriptive and enumerative, meaning that a significant number of policies is framed in a specific way and is predetermined, with their substance remaining outside the control of those who are supposed to abide by them in regulating their day-to-day political life.

[see analyses: (i) Why not inter-governmentalism? (ii) Modality and European Federalism, and (iii) Five paradoxes of EU inter-governmentalism]

As a European republican (aka “federalist”), I find such integration to be heading in the wrong direction. We will indeed be progressing towards the form of a federal formation, with multiple layers of government, but we will not be getting the democratic substance of a federal republic. Instead of a proper European Democracy, we will witness yet another iteration to the existing EU, to this quasi-confederation.

Centralisation of control

Mr. Draghi’s other interesting statement concerns fiscal and economic policy. It follows directly from the previously quoted paragraph. Here it is (emphasis is my own):

But we should also go further with regard to our policies. The report makes clear that EMU will also need to strengthen its tools to manage and prevent the build-up of fiscal, financial and other macroeconomic risks. In the last few years, notably with the reforms strengthening the economic governance framework and setting up the ESM, SSM and SRM, we have made important first steps in improving our crisis prevention and crisis management toolkit. But we are not there yet.

The idea of monitoring and preventing macroeconomic imbalances is not novel. It is in fact the very rationale of the European Semester. To cut a longer story short, this is a process of budgetary surveillance that takes place every year. National governments send their draft budget to the European Commission, which reviews them and sends in its own recommendations. The Commission maintains a scoreboard with a set of macroeconomic indicators which inform its recommendations. Governments must then incorporate the Commission’s proposals prior to their budget’s approval at the end of the year.

The Commission has a certain instrument for imposing penalties on Member States that persistently defy its recommendations. It is found in the Macroeconomic Imbalances Procedure, which consists of several phases, from an early alert mechanism to the ultimate imposition of sanctions.

What the European Semester currently lacks is a central authority for enforcing the rules. The existing framework is a heavily modified version of the Open Method of Coordination: an inter-governmentalist arrangement with the involvement of European institutions, which however tends to rely on “peer pressure” rather than predefined procedures.

Hence the concept of economic government, of Mr. Draghi’s “political centre”. Though they are still not willing to be specific, the idea would be to create within the existing structures a new hierarchy between EMU governance and Member States’ economic policy. Though particulars may vary, this would entail the creation of a special commissioner inside the Commission who will be tasked with governing the EMU. That person or office will be the one to enforce the provisions peculiar to budgetary surveillance and, given the need for preventing imbalances, have the power to impose certain policies, perhaps by means of vetoing national budgets.

This super-commissioner, this economic tsar, will be accountable to a new committee inside the European Parliament. This is often referred to as a “euro parliament”, but it will most likely be a super-committee rather than a distinct institution. The European Semester will thus be further centralised at the European level.

As concerns accountability, we should bear in mind the limitations of the European Parliament. As already implied in the previous section, this institution is not in the position to amend the legal basis of the Union or any given institution therein. The Parliament will not have the power to revise the scope of the euro-commissioner, nor impose conditions it considers appropriate.

This is the constraint the Parliament faces when it has to hold the ECB accountable. I would argue that “monetary dialogue” should be interpreted literally for it is just a discussion between the ECB and the Members of the European Parliament, with the latter having no ultimate way of either revising the ECB’s mandate or anyhow exercising democratic control over it.

[see analysis: On the institutional independence of the European Central Bank]

If the accountability of this new commissioner were to be similar to the one Mr. Draghi has to conform with, then we could as well add “fiscal dialogue” to our collection of terms used to denote the capacity of the European Parliament to act as a hearing chamber.

As for the SSM and SRM, i.e. the Single Supervisory Mechanism and the Single Resolution Mechanism, these concern macro/micro prudential control within the context of monetary policy. Strictly speaking, these are different from fiscal policy, though the boundaries can certainly be blurred where states and banks are heavily interdependent (in what is all too often a crony capitalist symbiosis).

Top-down control

The bane of a federal formation is the centralisation of control. Put differently, a federation is considered the most appropriate type of organisation when decentralised decision-making is needed. What the idea of a “political centre” implies is the opposite of what a federalist would campaign for.

An ever-centralising EU will not operate as a federation and, given its inter-state-treaties-based nature, will not be anything like a republic. It will rather be a top-down quasi-confederation, the kind of political union where authority is ostensibly exercised by many but is in fact controlled by few.

The report of the Five Presidents, the document Mr. Draghi alludes to, will not pave the way for a root-and-branch reform of the Union in the direction of republican federalism. It rather intends to reinforce and to calcify the most alienating aspects of the existing order.

The end-product will be a technocratic formation that will further de-politicise economic policy, rendering it elusive, beyond the reach of us citizens. In that new era, we will only be arguing over which leader’s face or personality we fancy the most, rather than the content of their political agenda, for that will largely be predefined, hard-wired into an ever-expanding, increasingly restrictive system of common rules.

I do not approve of such a drift in technocracy. Instead of preserving the mentality that gave rise to the EMU, we should be thinking of ways to take control and fully democratise the European level of politics, rather than maintain its current status as a remote bureaucracy.

I am well aware that the European Parliament is an exception, yet having experienced its operations myself, I am of the opinion that it has far less power than what a parliament ought to have in a proper republic. Deputies may be able to hold dialogues with the various economic governors, but they lack what matters the most: the capacity to alter the legal basis of their respective institutions and to make them pursue alternatives to their predefined mandate. The gist is that for as long as the Parliament cannot do that, it will not be in a position to properly control the technocrats, in the same way it cannot force Mr. Draghi to, say, incorporate unemployment indicators in his conduct of monetary policy: “price stability” is all the Treaties envisage.

To conclude, I think Mr. Draghi’s notion of a “political centre” is a welcome contribution in terms of accurately describing the direction of future European integration. In the past, we would have to deal with vague and perhaps more benign concepts of “political union”, but now we can be certain that the drive for centralisation has gained momentum. The impetus was provided by the euro-crisis which brought about a policy response for more centralised economic governance, in the form of the Two-Pack and Six-Pack of community regulations together with the Fiscal Compact. The Five Presidents have already committed to capitalise on that momentum, to realise their vision of a centralised, top-down quasi-confederation.

As for those of us who want a European Democracy, I am afraid that it will become ever more difficult to differentiate ourselves from this form of “federalism” and super-state elitism, of this federalism manqué if you will. In anticipation of that inevitable confusion, I have been employing the term “altereuropeanism” to denote a commitment to the ideal of a trans-border and trans-national space for common European politics that is not aligned with the kind of mentality that fostered the EU/EMU as they currently stand.

PS. Special thanks to fellow twitter user @GrkStav for bringing Mr. Draghi’s remarks to my attention.