Transcript Alesina, Alberto, Perotti, Roberto. The European Union: A

ALESINA, Alberto, PEROTTI, Roberto. The
European Union: A Politically Incorrect View.
March 2004, NBER Working Paper No. 10342.
European Economic Policies (JEM012)
Charles University in Prague
Zuzana Čapková
April 29, 2014
Outline
• Introduction
• Two research problems : overlapping jurisdictions,
dirigisme and rhetoric in the European Union
• Example of fiscal policy : the Stability and Growth
Pact
• Solutions proposed by the Draft Constitution
• Conclusions
• Contribution
Introduction
the authors
• Alberto ALESINA , Roberto PEROTTI – Italian professors
of economics
the paper published in March 2004
• before the Eastern Enlargement in May 2004 (EU 15)
• before the adoption of the Treaty establishing a
Constitution for Europe, even before its final version
(signed on 29 October 2004 by 25 MSs, ratified by 18 of
them, refused in French and Dutch referendums in
2005, replaced by the Treaty of Lisbon)
Institutions and decision making in the EU
• a balance between intergovernmental institutions (the European Council,
the Council of Ministers) and super national institutions (the Commission,
the EP, the Court of Justice)
• Community vs intergovernmental methods
• small vs large countries
– small countries see the Council and the European Council as
dominated by the large countries, they tend to support the
Commission
• first pillar vs second and third pillar
• QMV vs unanimity
– super nationalists would like to extend the areas covered by the
Community method and by QMV at the expense of unanimity
– the QMV eliminates the veto power of small countries (agricultural
policy)
Two problems of the EU institutions
1) An emphasis on institutional balance based on a complex web of
institutions with overlapping jurisdiction :
• instead of „division of powers“ as in the US the legislative, executive,
and regulatory powers shared by many institutions
• it is understandable due to the evolution of European integration
2) A conflict between a dirigiste versus a more laissez faire approach to
government :
• Dirigisme = Willingness of the state to intervene in the economy,
either systematically or ad hoc. This is contrasted with laissez-faire.
– Southern Europe, parts of continental Europe
• Laissez faire = Literally, leave to do. A policy of complete nonintervention by government in the economy, leaving all decisions
to the market.
– Anglo Saxon model
(Definition of the Dictionary of Economics, J. Black et al.)
Problem 1 : Overlapping jurisdiction of institutions
• lack of clarity in the allocation of powers between European institutions:
– the Commission (supernational body par excellence) and the Council
(typical intergovernmental body) and the European Council
• confusion in the allocation of prerogatives between national
governements and EU institutions (the principle of subsidiarity) :
– the EU should engage in those policy areas where economies of scale
and externalities are large and heterogeneity of preferences among
MSs is low, it is not always the case
• lack of transparency and accountability :
– the source of legitimacy should be the EP, the only directly elected
institution, but scepticism about it
Problem 2 : dirigisme and rhetoric
• clash of different views of government - the pragmatism of the Anglo
Saxon culture versus the tendency to verbosity of Latin cultures
• preference given to the dirigisme in the EU :
– an emphasis on coordination, intervention and quantitative targets,
but the impact is relatively limited as well as the power of EU
institutions in many policy areas
• the result of this approach is often inaction and a verbose rhetoric leading
the European policy debate in the wrong direction :
– „it is natural to have more to say if one believes in social engineering,
coordination, public goals, market regulation than if one simply wants
to let markets take their undisturbed course. A dirigiste frustrated by
inaction is more likely to produce numerous white papers describing his
plans for a dream world.“
Discussion about the working of EU institutions
•
•
•
•
•
Employment policies
Cultural policy
Foreign and defense policies
Fiscal policy : the Maastricht Treaty and the Stability and Growth Pact
several criteria to fulfill before entering the EMU : the budget deficit
below 3 % and government debt below 60 % of GDP by 1998, the
motivation of the provisions largely political, difficult to justify
economically (Germany wanted guarantee in exchange for surrending its
stable currency), two best observable indicators of economic
mismanagement
•
„the biggest problem with the implementation of the Maastricht Treaty and the
Pact is that they have opened the door for an expansion of the powers of the
Commission far beyond those initially envisioned; and that these enhanced powers
almost invariably express themselves as an attempt at coordinating and fine tuning
the fiscal policy of member to an extent that is clearly beyond the expertise and
capabilities of any institutions.“
Stability and Growth Pact (1999)
• fiscal monitoring of Members of the EMU by the Commission and the
Council of Ministers
– the Broad Economic Policy Guidelines adopted by the Council
– Stability Programmes submitted by each EMU member
– an Excessive Deficit Procedure - in case of violations
• surveillance and demand for corrective action, after multiple
warnings the possibility of issuing economic sanctions (refundable,
non-interest bearing deposits of up to .5 % of GDP)
• „exceptional and temporary“ deviations from the 3 % deficit were allowed
• example of France and Germany :
– open violation of the Pact in 2003
– the suspension of the application of the Pact by the vote of the
Council in November 2003 (it voted to „hold the Excessive Deficit
Procedure in abeyance“), it rejected the recommendations by the
Commission that France and Germany should implement urgent
measures to reduce the cyclically adjusted deficit by .4 and .8
percentage points of GDP
Evaluation of the inconsistent application of
the SGP
• this decision „killed“ the Pact, rough accusations between the
Commission and the Council, the Commission was suing the Council
at the European Court of Justice
• no chance for the future application of the Pact after it was
suspended in the case of the two largest countries of the EU :
• „whatever sovereignty large countries are willing to cede to the
Commission in matters of importance like fiscal policy, they will take
it back – legally or less legally if necessary for a sufficient number of
them.“
• it would be „more constructive“ to give fiscal discretion back to the
national governments, the involvement of the Commission is
unwarranted and counterproductive, the importance of the
Commission is undeniable within the EU, but it should return to its
original role as think tank of EU institutions and to work as a
„watchdog“
Other examples of economic dirigisme
• Reprimand of Ireland, issued by the ECOFIN Council of February 2001 :
– the Irish government proposed in its Stability Programme of 2001 a
reduction in the cyclically adjusted surplus by .3 % percentage points
in 2001 by reducing income and indirect taxes and by slightly
increasing government investment = a reversal of the indications in
the Stability Programme of 2000
• Declaration of the Commission in 2002 that the major economic policy
guidelines and the opinions on the stability and convergence programmes
should be drafted on the basis of proposals from the Commission and not
only as recommendations which would be subject to QMV of the Council
Solutions proposed by the DC (1)
• Problem 1
• Lack of clarity in the allocation of powers :
– a tri-partite assignment of responsibilities for external relations (the
President of the UE, the Commission President, the High
Representative for the CSFP)
– marginal increase in the power of the Commission President
– strenghtening of the European Council at the expense of the
Commission
– change in the QMV procedure
– unpredictible power of the Commission : „the balance of power within
the EU is driven more by the political climate and the influence of the
various countries and coalitions than by the institutional changes.“
• The allocation of prerogatives between national governments and EU
institutions :
– areas of exclusive competence, of shared competence and of
„supporting, coordinating or complementary action“, leave too
much space to free interpretations and extensions of
competences
Solutions proposed by the DC (2)
• Lack of transparency and accountability :
– some progress identified
– a separate legal personality of the EU, but limited practical
implications
• Problem 2
• „The DC has taken several steps back on this problem.“
• critique of its Eurocentric and historically wrong statement about the birth
of civilization in Europe
• Part 2 (list of fundamental rights) is deeply rooted in a Continental
European tradition, shows a tendency to regulate excessively (social
policy)
• they criticize the denomination of rights and their contradictory
interpretations
Conclusions
• the Draft Constitution is trying to solve the first problem, but only partially
• it adds to the second problem, which is more important, it is related to
„culture“ and visions about the role of government
• the European integration project is not intrinsically wrong, on the
contrary, the super national structure is beneficial in many respects
(externalities, economies of scale etc.)
• the areas where the two problems were avoided are perceived as a
success for the European Union :
– the ECB and the common monetary policy
– Single market and competition policy
• the crucial role of France and Germany must be always taken into account
Contribution
• Reforms of the SGP :
• in March 2005, under the pressure of France and Germany, the rules were
relaxed : new parameters were added to the two existing (the behaviour
of the cyclically adjusted budget, the level of debt, the duration of the
slow growth period and the possibility that the deficit is related to
productivity-enhancing procedures)
• in March 2011, in response to the sovereign debt crisis, the „Euro Plus
Pact“, the successor of the SGP, was adopted (advocated by France and
Germany)
Discussion
• Politically or rather Economically incorrect view of
the authors?
• Can we avoid regulatory approach of the EU in times
of crisis?
Bibliography
• ALESINA, Alberto, PEROTTI, Roberto. The European Union: A Politically
Incorrect View. March 2004, NBER Working Paper No. 10342.
• BLACK, John et al. A Dictionary of Economics [online]. Oxford University
Press, 2009. [cit. 2014-04-27]. Available from WWW :
<http://www.oxfordreference.com/view/10.1093/acref/9780199237043.0
01.0001/acref-9780199237043>
• „Stability and Growth Pact“. Wikipedia : The Free Encyclopedia. Wikimedia
Foundation, Inc. 11 April 2014. Web. 27 April 2014.
<http://en.wikipedia.org/wiki/Stability_and_Growth_Pact>
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