EU federalism and the German Question

2015-10-13

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Thomas Fazi (@battleforeurope) is a fellow leftist who, in my understanding, engages in constructive criticism of the European Union, especially as concerns the specificities of the euro’s framework for economic governance. By “constructive criticism” I refer to the kind of analysis that sheds light on design flaws that: (a) decisively prevent the conduct of rational economic policy in line with evolving needs and circumstances, and (b) hamper any effort to make the EU qua political space function as a genuine [federal] republic.

In an October 9 article for Open Democracy titled “The failure of mainstream European federalism”, Mr. Fazi concludes thus:

Personally, I believe that we should simply acknowledge that the political conditions are not ripe – and will not be for quite some time – for a move towards a fully-fledged fiscal and political union, and that it would be in the long-term interest of the federalist cause to take a step back in the integration process by demanding greater flexibility at the national level, as advocated by Philippe Legrain, thus slowly recreating the conditions for moving towards a true solidarity-based and democratic fiscal and political union.

The analysis covers two broad topics: (1) the balance of power in Europe, with an emphasis on Germany’s current semi-hegemonic status, and (2) the drive for centralisation at the European level.

On the first one, Mr. Fazi outlines the elements of German power, namely its exportnationalismus (export nationalism), its stabilitätskultur (stability culture) and its vision for a kerneuropa (core Europe) consisting of fiscally tight states.

As for the second part, he criticises the overall lack of pragmatism, or the general complacency, among those who are pro-EU-integration, for having failed to develop a strategy that indeed helps them realise their ambition (he calls them “federalists” though I do have some strong reservations with, say, the Treaty of Maastricht, or even the Treaty of Lisbon, being seen as some laudable pivot towards a constitution-based federal republic—these are inter-state covenants which have made the EU a quasi-confederation).

The not-so-German Question

It is true that in recent years Germany has been in a position of strength. This, I think, is a situational state of affairs that has much to do with the overall absence of cogent counterpoints to the main narratives of the German government.

Indeed, Ms. Merkel’s years in office are characterised by a firm commitment to the tenets of ordoliberalism. Yet it also is true that in the same period no other government in Europe has actually challenged this mindset. For instance the Fiscal Compact, an inter-state treaty that practically codifies a rather ordoliberal approach to fiscal policy, was signed by states that seem to disagree with its substance, at least in terms of their own view on fiscal policy (e.g. France and Italy).

The stabilitätskultur is not at all novel. Its essence is already part of the Community’s acquis in at least three distinct ways:

1. the very mandate of the European Central Bank, which only considers medium term price stability without accounting for any social-economic indicator such as unemployment;
2. the regulatory framework for economic governance, implemented via the European Semester, whose objective is to neutralise fiscal positions across all Member States (balance budgets) and to eventually control current accounts;
3. the budgetary position of the EU as such, manifesting in the need for the Multiannual Financial Framework to be on balance over its entire duration.

A stability culture is the ambition of many who are happy with the EU as is. It is what gives the euro’s peculiar brand of economic governance, that of common rules without common politics, its ostensible credibility. As Olli Rehn, the former European Commissioner responsible for Economic and Monetary Affairs and the Euro, said in a July 1, 2013 presentation:

All in all, the economic and financial crisis has clearly taught us that the stability culture has to go beyond monetary policy and beyond fiscal policy. I am particularly referring to a sound micro- and macro-prudential policy for the financial sector, as well as to the prevention of harmful macroeconomic imbalances and to the pursuit of structural reforms as enabling policies for a stable monetary union. In the end of the day, having a set of stability rules is not the same and does not yet amount to as having a stability culture. This is more than simply a semantic remark. A culture of stability means not only having a framework of norms and rules that contribute to fiscal and financial stability. Culture also means that we all make the rules our own.

On kerneuropa and exportnationalismus, we once again find that binary to be at the heart of the Economic and Monetary Union’s effective legal framework. Economic governance is, at least in principle, geared towards making all Member States fiscally parsimonious, “prudent” as they may call it, and to reshape their economies so as to eventually become export-oriented.

These are elements of a policy framework that transcends Germany. Either we are to boldly infer that all of the EU, or at least the euro area, is but an extension of German rule, or that the underlying ideology of this order is not essentially “German”, as non-Germans seem to live by it.

What appears to be German power may prima facie be understood as non-German powerlessness. To entertain the plausibility of that theory, let me briefly mention the views of France and Italy. France’ Economy Minister Emmanuel Macron has called for an “economic government” for the euro and for a dedicated euro-commissioner. Italy’s Finance Minister, Pier Carlo Padoan delivered a speech where he basically adopts and rephrases the arguments of the Five Presidents’ report. Just for context, “economic government” was also used by Jean-Claude Juncker in his state of the union speech, while Mr. Draghi has called for a “political centre” for the euro, which can be understood as yet another euphemism for the euro-commissioner, the economic tsar of the euro.

[see analyses: (1) On Draghi’s “political centre” for the euro, (2) On the statelessness and flawed governance of the euro]

But I digress, for the power-or-powerlessness approach may seem tautological. I do believe though, also as hinted above, that the renewed talk on “the German Question” and insofar as the EU is concerned, while incorporating valid points, prevents us from understanding the broader context of the EU’s internal balance of power. Apart from overestimating Germany’s own factors of power, it remains trapped in an early 20th century view of Europe as a space that necessarily contains squabbling nation states. The discussion of political interests that overlap with national borders forces us to lose track of the cross-border aspects of such power, which have to do with the clash of ideologies and the eventual dominance of neoliberalism or the peculiar brand of euro-neoliberalism.

The “anti-Keynesian” mindset may be strong in Germany, yet the same can be said for Eastern European countries which, due to their historical experience, are, in general terms, rather suspicious of anything that appears to be “socialist”. Similarly, we still need to see whether Spain and Portugal may provide us with a couple of cases where the conservative forces regain a grip on power, based on their internalisation of the pro-austerity mantra. As for Greece and though Syriza may continue to be counted as a leftist party, the policies to be implemented under the third bailout programme are anything but left wing. By the by, the third bailout passed through the national parliament with an overwhelming majority, albeit under conditions of extreme duress; an agreement which brought about another round of early elections that saw Syriza increase its power, all while ejecting the radicals from its ranks.

Writing as someone who did support Lafazanis on the principle of having the right to exit an ill-designed monetary union, I think that the events seem to contradict the radical leftist narrative. Time and again, the more-or-less conservative approach has prevailed, embedding the perception of “no alternatives”. Maybe the others have it right and we err lamentably, or perhaps there is something wrong with the underlying analysis in some of our own arguments.

One of them is, I believe, the issue of German power and how in criticising effective-neoliberalism-as-extension-of-German-power we are inadvertently mired in an inwardly nationalist (pro-nation-state) world-view, where nations are necessarily standing against one another in some predetermined master-slave relationship.

While this may appear idealistic—though I would argue to the contrary—I do uphold that the filter through which we see the world conditions what we perceive as pragmatic. In Europe, I do not find inexorable or insurmountable conflicts between national interests. Besides, any kind of Union action requires, in many ways, cooperation between the Member States—a broad alignment of interests that is. What I do tend to see is the supremacy of an ideology that transcends borders and whose specificities cannot be fully grasped in terms of 19th or 20th century narratives of nation versus nation.

Another area where the leftist narrative falls short is on its ambivalence on the outlook of European integration.

What should become of the EU?

I appreciate Mr. Fazi’s qualification of federalism as “mainstream federalism”. This is similar to my own critique of the kind of europeanism that made the EU and the EMU what they actually are—and why I call for “altereueropeanism”.

On the issue of European integration as seen from a general leftist perspective, I think there exists a common misconception: that of identifying the EU with capitalism or neoliberalism. Though there may be a kernel of truth in that position, it ends up being simplistic and nihilist. The EU is not just capitalist/neoliberal. It rather presents us with an extra corpus of law that, among others, reinforces citizens’ rights on issues such as civil liberties, food safety, environmental protection, and the like.

The preponderance of the neoliberal paradigm is not so much a function of EU law as it is the outward expression of the balance of power within our localities and across our societies (the Treaties can be interpreted in several ways, provided there is willingness to do so). The reality of, say, the European Semester being an exercise in perpetual austerity, is not independent from the decisions and aspirations of the national governments, or coalitions of interests in parliaments, that formulated, ratified, and are now abiding by this system. The reason the European Semester is what it is, comes down to the Member States, or the vast majority of policy-makers, wanting it to be that way.

We thus come to the leftist narrative of changing this state of affairs. If I may use as a proxy the “plan B for Europe” that Mr. Varoufakis et al are campaigning for, I find it lacking in its vision, for it essentially seeks to recreate the EU as an inter-governmentalism among leftists. They thus fail to grasp the flaws of the EU as a quasi-confederation, which stem from its inherent sovereignty mismatch between supra-national rule, and the absence of a European Demos from which it may draw legitimacy and toward which it may be directly accountable.

[see analyses: (1) Why not inter-governmentalism, (2) Res publica and European Democracy]

Moving backward in order to go forward

Indeed there is no chance that a genuine federal republic will be established any time soon. The direction of short-to-medium-term European integration is that of committing to the quasi-confederal method; that of having supra-national and largely “depoliticised” rules and institutions without sufficient space for common politics.

[see analysis: Europe’s ever closer inter-governmentalism]

In the above-mentioned conclusion to Mr. Fazi’s article, we find the opinion that integration should be rolled back, since its current direction is only poisoning European unity. I do agree with the essence of that idea, if the choice is between a centralised-and-centralising quasi-confederal technocracy and a decentralised one.  However and to reframe this dilemma, we are practically speaking of the early days of the euro in juxtaposition to the euro of the present.

Assuming this were the option, and given the EU’s inherent inter-governmental architecture, we need Member States that are willing to annul their entire policy response to the euro-crisis, such as the Two-Pack and Six-Pack of Community regulations, the Fiscal Compact and the ESM Treaty, as well as all of the monetary policy initiatives of the ECB that have as their prerequisite the presence of the ESM as the euro area’s fiscal backstop (such as the Outright Monetary Transactions).

We thus need the European Council to provide the Commission with a mandate to repeal, via the ordinary legislative procedure, all those regulations which fall under its purview, while the national governments proceed to jointly abolish the two inter-state treaties they ratified in the midst of the euro-crisis. Meanwhile, the ECB will recede to its former position: that of doing nothing meaningful to address the economic shock.

This brings us back to the leftist vision for European integration. If we do have this alignment of interests necessary for reversing integration, why should we want to return to the early days of the euro or, at best, proceed to a Maastricht 2.0? Why not use that group of forces to make a quantum leap in the direction of democratising the system?

These are mere hypotheses. The implied statement is that the theoretical debate on federalism—what I prefer to consider the constitutional discussion on the specifics of a potential European Democracy, a federal republic founded on a codified corpus of primary law—need not be dismissed as merely impractical or idealistic. If one only focuses on day-to-day affairs, on managing whatever comes their way, they will simply not know towards where they are heading, thus running the risk of ending up in an even less desirable state of affairs (the gradual approach to European integration is one such example).

That granted, I do agree with Thomas Fazi on his assessment of the status quo: the balance of power in Europe is not favourable, as it strongly endorses—and enshrines in law—the euro-neoliberal mindset, all while the mainstream pro-european, the one who calls for “more europe” as if that were an end in itself, often ends up being the apologist and cheerleader of a suboptimal, ill-designed political order.

As for Philippe Legrain’s article (it is linked to in the quote I referenced in the introduction) and if I understand the thesis correctly, his assumption seems to be that the main flaw of the euro is its tendency for centralisation. Reversing that is a major step to making things better.

For me centralisation is more of an epiphenomenon that anything else: it is the side effect of an inter-governmental structure that operates along technocratic lines, with the effectiveness of its provisions for governance being contingent on their top-down enforcement. A more decentralised system, which nonetheless remains a quasi-confederal technocracy, will, at the very best, make the specifics of policy less pernicious over the short term. This not a sustainable design, as already illustrated by the euro’s presence prior to and during the crisis. I don’t think the early days of the single currency offer any compelling paradigm for a monetary union. A throwback to that era will mean that we learned nothing from the euro-crisis.

Mr. Fazi’s is a very interesting and insightful piece. It sheds light on the current state of European politics, on the intellectual inertia of many pro-europeans, while providing inspiration for further analyses on a number of concomitant themes.

Where I do want to see some emphasis in the milieu of leftist thought on European affairs is on the following:

• an interpretation of events as primarily a clash of ideas (euro-neoliberal versus anything else), rather than inescapable conflicts between nations;
• a decoupling of the magnitudes of EU and capitalism/neoliberalism, with a corresponding assertion of existing policies being a reflection of the current balance of power within our localities and across our societies;
• a clear vision on the future of European integration, whose midpoint is a values-based approach, not just the recreation of this EU as a leftist quasi-confederation;
• the connection between theoretical and programmatic propositions, i.e. political parties running for power that found their agenda, among others, on this altereuropeanist ambition for European integration.