Treaty for Euro democracy: a four-fold critique

An interesting proposal based on a bad precedent

2017-03-28

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Benoît Hamon, the socialist candidate for the French Presidential elections, has furnished a proposal for democratising the euro area. It comes in the form of a draft treaty, which has been put together by a group of eminent scholars, with Thomas Piketty probably the most famous among them. The document, titled “Treaty on the democratization of the governance of the euro area (T-Dem)” (here is the download link to the text in pdf format), aims to provide a framework for the near future reform of Europe’s economic governance, specifically as concerns the euro area.¹

Such contributions are most welcome. They broaden the debate on Europe’s future and can, by that token, enrich it even further. It is encouraging that in light of national elections, European matters are given serious consideration on their own grounds, rather than from the perspective of foreign policy. The fact that T-Dem is available in English further strengthens this quality. People outside France thus have a chance to read, learn, and comment accordingly.

Proceeding to the gist of the matter, T-dem follows in the footsteps of the Fiscal Compact and the ESM Treaty. It is designed as an ad hoc inter-state agreement that is meant to complement the EMU’s fiscal framework and pave the way for the eventuality of a proper amendment of the European Treaties.

In essence, T-Dem is the missing component of the Fiscal Compact. It addresses the normative issues that were omitted from that treaty, namely, the legitimacy of decisions within the context of economic governance, and the accountability of the decision-makers. In that regard, the document is tackling a real flaw of the present EU/EMU architecture. Where it falls short is, first and foremost, in its modal features: it is an inter-state agreement that replicates the modus operandi of the Fiscal Compact and, thus, seeks to build even more structures outside the proper EU framework, with the intention to streamline everything ‘later’.

The way in which the Fiscal Compact and the ESM Treaty were signed is not canonical. It is not how European politics is supposed to work, even at the inter-state level. The justification for such an extraordinary course of action was the pressing financial crisis. Indeed without the enhanced [presumed] credibility of the rules pertaining to fiscal discipline, in conjunction with the renewed confidence in the bailout mechanisms provided by the ESM, the European Central Bank would never have conducted its Outright Monetary Transactions (contingent on ESM conditionality), while it would have hesitated to implement its [Targeted] Longer Term Refinancing Operations and the ensuing quantitative easing.

In the height of the economic crisis it was considered expedient—indeed absolutely necessary—to follow a path of differentiated integration, with the understanding that the circumstances were exceptional and any measures taken therein would be limited in scope. The Fiscal Compact and the ESM are expected to be incorporated in the proper EU legal corpus at the soonest, not create a fork on the road to political union.

Couched in those terms, let us proceed to the four-fold critique of T-Dem.

1. Is there a democratic crisis?

Most Europeans would agree that the EU could do much better in terms of its overall legitimacy and accountability. And indeed there is scope for thoroughgoing reforms that would refashion the EU into a federal republic. The Commission could become a proper government. The European Council would be turned into a platform where only matters of primary law would be considered (e.g. a new Treaty). The Council would turn into a directly elected senate. And so on.

However, when we criticise the EU for not being democratic, we are in fact arguing that it is not democratic enough. It does not meet the highest standards of the republican institution of society, even though it is predicated on such principles. Yet these standards are already quite lofty and ambitious. We should not presume that each and every Member State already fulfils them.

Furthermore, we criticise the EU for the things it is not particularly good at, but often fail to point out, with the same vigour and intensity, the whole range of issues where it excels. Remaining on matters constitutional, the EU’s model for the distribution of competences is impeccable: the principles of conferral, subsidiarity, and proportionality do indeed provide a solid basis for any democratic legal order. While the content of policy, ranging from consumer safety, to individual privacy and data protection, to environmentalism, is actually well ahead than what many national administrations actually stand by.

The specifics need not be considered herein. The point is that it is hard to follow the somewhat alarmist narrative of the T-Dem that there exists a democratic crisis and that, therefore, the only solution is yet another ad hoc agreement between a group of Member States. Europe’s shortcomings on the democratic front require careful thought, deliberations on several fronts, and a fully fledged process of constitutional reform that will culminate in referenda for the future of the EU. Even if we end up with a new Treaty, it needs to be as broad-based as possible.

The Fiscal Compact and the ESM Treaty were thought of—and should forever remain—isolated events. The conditions that forced their creation and ratification no longer exist. Besides, drawing parallels between the euro crisis and some exaggerated democratic crisis, apart from being factually incorrect, is a great way to help europhobes rise to power. Saying that the EU has a democratic crisis implies that whatever the supranational level does is akin to totalitarian diktat. Understandably that is not what the authors of T-Dem intended, but shrewd nationalists may not care about such subtleties.

2. The euro area is not a distinct entity

The euro is the official currency of the EU, not just the euro area. Euro membership is, in technical terms, the final stage of integration in the Economic and Monetary Union. All EU Member States, with the exception of those that have formal opt-outs are legally bound to eventually adopt the single currency. The euro is but a part of the EU, layered on top of the single market (with its four freedoms) and other major legal achievements such as European citizenship.

Nonetheless, there exists a divide between euro and non-euro members. The former group faces certain realities that simply do not apply to the latter. They have forgone their monetary sovereignty, while their fiscal policies are closely coordinated. Put succinctly, euro countries have decided to become fully inter-dependent and, thus, subject to asymmetric shocks. For that reason alone, the euro area requires some reforms that would contribute to its longer term viability. These pertain, in particular, to macroeconomic stabilisation mechanisms, ideally of an automatic sort, that would help counter economic downturns and iron out structural imbalances.

But reforming the euro architecture to make it work like a viable currency area does not mean duplicating institutional arrangements, nor developing a more integrated replica of the EU inside the EU. Differentiated integration can only be justified on grounds of absolute necessity and always remain open to all Member States. The euro is not an elite club. It is best understood as a different point in the integration process.

Every country should have a say in euro matters, because all of the EU states could potentially become euro members. Though this is not only a matter of potentiality. The need for such universal participation is also derived from the very nature of the euro area as a part of the broader EU architecture. The euro uses EU institutions and resources. All Member States have a stake in the matter.

A series of reforms such as those suggested by T-Dem, would turn the euro into a de facto separate entity. That would make the single currency something more than a different point in the continuum of European integration: it would become an altogether distinct community of states. Such a split would be to the long term detriment of the Union’s singleness. EU processes would have to be duplicated and reworked accordingly to fit into the then-detached euro order, while non-euro states would effectively be excluded from the club or, at any rate, be forced into accepting all sorts of faits accomplis.

The Maastricht Treaty which paved the way for the euro as the most pronounced form of differentiated integration, did so on the premise of expedience. Some countries were supposed to proceed with monetary integration, with the understanding that others would join later. That is, in part, why the Eurogroup is an informal entity and why, despite the resulting complexity, the ECB is an EU institution (not euro-specific) that is, inter alia, subject to judicial oversight by the CJEU (another EU institution). It also is for that very reason that all laws, including the Six-Pack and the Two-Pack, come through the ordinary legislative procedure rather than some specialised, euro-specific mechanism.

The gist is that the euro area is part and parcel of the EU at-large. There are differences, but these are ones of degree not category. The longer term outlook of the integration process is to preserve the singleness of the venture. Reforms to the EMU architecture should thus be consistent with the objective of keeping the Union in tact.

3. The European Parliament should not be sidelined

The crux of the T-Dem proposal is a bespoke Assembly for the euro area, which will mostly consist of members of parliament from the Member States. In principle, this idea is consistent with the way in which economic governance unfolds: at the intersection of national and supranational spheres. The current design does indeed engender asymmetries, in particular by weakening national parliaments that cannot exercise effective scrutiny over a de facto supranational (intergovernmental) entity due to differences in scope of authority (national vs supranational).

Lest we forget, this state of affairs, which is admittedly suboptimal, is the product of ad hoc measures which are expected to be streamlined and optimised in the coming years. The problem we are dealing with is not only about sufficient parliamentary control. It concerns the vertical separation of powers. What economic governance practically does is blur the lines between national and supranational affairs. Decisions are adopted at the EU level and yet the expectation is for them to be legitimised at the national one. In practice, this disturbs the delicate balance provided by the principles of conferral, subsidiarity, and proportionality, while it creates what I have referred to as a sovereignty mismatch (in short: rules for the system as a whole which are not validated by a commensurate demos).²

As such, the solution is not a symmetrically compatible framework of accountability; yet another ad hoc system. The vertical separation of competences should be restored by means of granting more power to the European Parliament, while also making the decision-making aspects of economic governance accountable. The former could, given the circumstances, come in the form of a euro affairs sub-committee of ECON open to all MEPs (sub-committees are standard for the European Parliament). As for the latter, it should, at the very least, involve the Eurogroup in a more formal capacity, where its Presidency would be accountable, and thus dismissable, by the Parliament. In the future, the plan should be for a European Finance Minister to lead economic governance, with the Eurogroup being turned into a proper Council formation.

More generally though, solutions should remain in line with the objective of keeping the EU in tact.

4. The Monetary Dialogue is the business of the European Parliament

The suggestion of T-Dem is for the ECB to be held accountable by the proposed Euro Area Assembly. As was noted above, the ECB is an institution of the EU, not the euro itself. It would be contrary to the singleness of the Union to have the ECB speak only to a fraction of parliamentarians.

As things currently stand, the ECB participates in the so-called “Monetary Dialogue”, where a member of its executive council attends a hearing of the European Parliament’s ECON committee. Any reform should improve upon this platform, such as by granting more powers to the EP, while demanding greater transparency from the ECB.³

The reason is that the European Parliament is the co-legislative institution of the EU. All legislation, including laws that affect the functioning of the euro area, passes through the EP. It is only natural to expect the legislators, who are well aware of the content of the laws they pass, to exercise scrutiny over their implementation. Besides, the EP is on the same horizontal magnitude as the ECB. Both are EU institutions, which operate within the framework of the horizontal separation of powers (i.e. checks and balances).

Taking powers away from the EP, either by creating new institutions or bespoke inter-state arrangements, sets a very bad precedent. It fragments the Union but, more importantly, it partialises normative issues. National parliaments are, more often than not, voting for their government. An inter-state parliamentary assembly would thus be more of an echo chamber than a robust check on the decision-makers of economic governance.

The singleness of the Union extends to the uniformity of its democratic foundation. This has to be safeguarded at all costs. The European Parliament, as a supranational institution that is not tied to any particular national or governmental agenda, is well equipped to scrutinise everything that pertains to European policy. What we need is an even more powerful EP, a ubiquitous one; one that can even become a pain in the back of inter-governmentalists.

Canonical EU reform is what we need

T-Dem wants to address a real problem: the asymmetries of Europe’s economic governance. However, the means it seeks to employ are predicated on a false premise: that it is desirable to further fragment the Union by turning differentiated integration into distinct path dependencies of integration; different scopes of Union.

At present, the conditions that gave birth to the Fiscal Compact and the ESM Treaty, do not exist. The global environment that forced such modalities of integration was one of economic duress and radical uncertainty about the very foundations of the Economic and Monetary Union. The policies adopted in the midst of th euro crisis are justifiable, even if their content is far from desirable. There is no equivalent crisis of democracy which would necessitate another round of ad hoc inventiveness that would duplicate EU structures and further fragment the Union.

We now stand at a point were momentum is building up towards a thorough reform of the EU as a whole (assuming all goes well in the French elections and elsewhere). What Europe really needs is a careful, well-planned, extended process of deliberation on the amendment of the Treaties. Rather than continue on the dangerous precedent of the Fiscal Compact and the ESM Treaty, European leaders should seek ways to iterate on the EU architecture, improve existing institutions and regularise any set of measures/procedures that currently is outside the proper order of things.

The longer term objective, the guide to concerted action at the supranational level, should always be the integrity and sustainability of the Union. This means that differentiated integration, whenever it is pursued, should not undermine the singleness of the Union. Maintaining multiple Unions may seem to solve the problems in the short term, yet it will definitely lead to friction, inconsistencies, and contradictions further down the road. Moreover, it will effectively weaken EU institutions by partialising and perhaps outsourcing part of their competences (such as the Euro Area Assembly doing part of the European Parliament’s job). Such a potential turn of events would be to the detriment of European citizens, for it would effectively increase the conduits through which dubious decisions could be ‘legitimised’.

In conclusion, and to recapitulate, my four-fold critique against the T-Dem, and the reason why I would not approve of it even if I agree with the need of fully democratising the EU/EMU, is as follows:

1. There is no democratic crisis, certainly not in the form of a sudden, largely unexpected concatenation of events that poses an immediate existential threat to the euro area or the Union in general. Any future reform of the EU, any amendment to the Treaties, should follow the canonical procedures, not be modelled after the Fiscal Compact and the ESM Treaty. Those were ad hoc agreements that should be treated as one-off events. Reforming the EU must also mean correcting what those agreements did wrong, including at the level of the modal features of decision-making. From now on, EU reform must be carefully-considered and broad-based.
2. The euro area is not a distinct entity, but rather a subset of the broader EU edifice. The euro area as such would amount to very little without the EU, without its institutions and its achievements, such as the single market and the four freedoms. Treating the euro as a category unto itself is factually incorrect and strategically mistaken. It can lead to the fragmentation of the EU institutional landscape, the possible duplication of republican functions, and, worse, the partialisation of competences with democracy being the ultimate loser, both in terms of content and the overall transparency of the resulting architecture.
3. The European Parliament is the Union’s most democratic institution in terms of input legitimacy. It represents the interests of the European citizens at-large and, thus, is the best instrument we currently have for realising anything close to an outright European democratic will-formation. Circumventing the EP can have deleterious implications, such as an overall degradation of democracy, in spite of intentions to the contrary.
4. The Monetary Dialogue, and generally everything that pertains to the horizontal distribution of power among the EU institutions, ought not be undermined. Instead, the focus should be on further reinforcing the democratic structures of the EU order, so that, for example, the EP can exercise better oversight over the monetary function. The flip side of maintaining the balance among EU institutions, is a sensible approach to the vertical distribution of competences. Decisions at the supranational level should be legitimised at that level. Matters of national import should fall within the democratic loop of the nation state, and so on.

The above granted, I do think that the T-Dem and similar proposals are excellent contributions to the debate on the future of the European Union. What we need as Europeans is for as many people as possible to be engaged. The integration process no longer is the elitist, technocratic exercise in dismantling trade barriers and other impediments to the free movement of goods. Today we are also concerned with the normative features of the EU and, perhaps for the first time in the history of the integration process, we are contemplating the realistic possibility of turning the Union into a modern federal republic. To that end, we should treat inter-governmentalist methods as a relic of the past, at best the last resort to tackling various issues. Our focus should be on making the existing EU institutions work better in line with republican constitutional norms. There is no need for inventiveness, for new and ever more complex institutional arrangements and overlapping international relations within and beyond the confines of EU law. We can do just fine with reforms that reinforce the input and output legitimacy of each institution within the current setup, all while preserving the singleness of the Union.

1. I learned about T-Dem from this March 26 article on the Verfassungsblog. [^]

2. For more on sovereignty mismatch, read the relevant chapter from my Little Guide to the European Union, as well as the more recent article on the powers of the European Parliament. [^]

3. I have written extensively about the independence and accountability of the ECB. See the recent article on inflation targeting, or the relevant chapter from my Little Guide to the European Union. [^]