Transcript I. It`s democracy, stupid!

Professor
Stefan
Collignon
Democratic Surveillance or
Bureaucratic Suppression of
National Sovereignty in the
European Union?
Ideas on the Multilateral
Surveillance Regulation
European Parliament
15. September 2010
Professor
Stefan
Collignon
I. It’s democracy, stupid!
II. Debating competitiveness
III. A democratic framework for budget surveillance
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Professor
Stefan
Collignon
I. It’s democracy, stupid!
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Professor
Stefan
Collignon
• Europe has been built by “enlightened
despotism” and present reform proposals
for economic governance are more of the
same
• But the legitimacy of policy-making behind
closed doors is increasingly questionable
– Compliance with rules and policy agreements is
fading: Greece, Germany, Slovakia
– Legitimacy by policy-output vanishes, as the
Union does not produce the output people want
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Professor
Stefan
Collignon
Recent Eurobarometer
• Between spring and autumn 2010, approval
of the EU has fallen by 10 points in
Germany and 17 points in Greece.
• At the same time national governments or
parliaments inspire even less trust than
European institutions
• Legitimacy matters
– Good governance creates legitimacy
– Legitimacy creates good governance
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Professor
Stefan
Collignon
What’s wrong with economic governance?
• COM: the recent crisis “showed gaps and
weaknesses in the current system,
underlining the need for stronger and
earlier policy co-ordination, additional
prevention and correction mechanisms and
a crisis resolution facility for euro-area
Member States.”
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Professor
Stefan
Collignon
What’s wrong with economic governance?
• ECB: “The disappointing performance of
fiscal policies under the EU framework was
due to the weak governance of the Stability
and Growth Pact (SGP), notably (i) a lack
of enforcement of fiscal discipline at the EU
level and (ii) insufficient national incentives
to comply with the EU rules.”
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Professor
Stefan
Collignon
• Policy proposals aim at raising the
efficiency of policy making,
– i.e. improving the system’s output,
• but none talks about the legitimacy of a
political system, where policy
compromises are negotiated between
governments, and
• the democratic representatives of
citizens, namely the European
Parliament, have very little to say.
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Professor
Stefan
Collignon
The fundamental questions
• Why was the governance so weak?
• What kind of incentives are needed to
improve the situation?
• Who is legitimizing European policy
decisions?
• How is it possible that governments tell
each other what to do, when each has
been democratically elected to something
else?
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Professor
Stefan
Collignon
• Most reformers fail to see that democratic
member states are responsive to national
constituencies, and that this often leads
them to ignore the European collective
good as long as there is no European
authority that can legitimately overrule and
stop their uncooperative behaviour.
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Professor
Stefan
Collignon
The answer
• A democratically legitimate Economic
Government
• Representation of and deliberation by all
citizens, not a in the faction of nation states
• Lisbon Treaty: “ordinary legislative
process” (art. 294) sets a procedure for the
interaction of Commission, Council and
European Parliament.
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Professor
Stefan
Collignon
II. Debating competitiveness
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Professor
Stefan
Collignon
• Economic competitiveness is a confused
notion.
• Paul Krugman (1994) has famously argued:
“Competitiveness is a seductive idea,
promising easy answers to complex
problems. But the result of this obsession is
misallocated resources, trade frictions and
bad domestic economic policies.”
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Professor
Stefan
Collignon
• What criteria?
– Current account balances?
•
What is good, what is bad?
•
Engendered by fast or slow growth?
– Structural positions intra & extra EU trade
Germany
NL
IT
FIN
IRL
FR
GR
PORT
SPA
intra EU trade extra EU trade
s+
s+
s+
ds+
dds0
ss0
ds-d
dddd0
dd-
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Professor
Stefan
Collignon
• Two concepts
– Improve efficiency and productivity
•
Lisbon strategy, 2020?
– Be price-competitive and take market share
•
ULC diverge
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Professor
Stefan
Collignon
• Wage negotiations are too nation based and
secretive
– Need to open Macroeconomic Dialogue
– Open debate at EP before meeting with ECB
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Professor
Stefan
Collignon
III. A democratic framework for
budget surveillance
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Professor
Stefan
Collignon
The need for more fiscal policy coordination:
Defining the aggregate fiscal stance and control
implementation
•
•
•
Voluntary by sovereign MS?
–
Failure due to collective action problems
–
No taxation without representation
Bureaucratic centralisation?
–
COM: European semester
–
ECB: independent expert panels
Ordinary legislation process?
–
EP as citizens’ representation
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Professor
Stefan
Collignon
A proposal: Borrowing permits
1. The Economic Guidelines become a Union
legal act
– that defines the general policy orientations and
decides/authorises the optimal borrowing
requirement for the Euro Area,
– i.e. the aggregate budget deficit which is
considered consistent with
•
the economic environment (business cycle) and
•
the structural requirements of the European
economy (public investment, aging etc.).
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Professor
Stefan
Collignon
2. The European Parliament will have an
active role in the formulation of the
desirable aggregate policy stance.
– Council must decide: political will
3. Each member state is allocated a share of
the total borrowing authorization.
•
Share of GDP
•
possibility of horizontal transfers of the borrowing
permits
–
Pollution permits
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Professor
Stefan
Collignon
%-Shares in:
Difference
Borrowing GDP
% of GDP
Germany
14.0
27.3
-13.3
Italy
13.9
17.0
-3.1
Netherlands
4.7
6.3
-1.6
Finland
0.9
2.0
-1.1
Austria
2.1
3.0
-0.9
Belgium
3.5
3.8
-0.3
Cyprus
0.2
0.2
0.0
Slovakia
0.7
0.7
0.0
Slovenia
0.4
0.4
0.0
Portugal
2.2
1.8
0.5
Ireland
3.6
1.5
2.0
Greece
5.3
2.6
2.7
France
28.0
22.0
6.0
Spain
20.5
11.5
9.0
Euro Area (13)
100.0
100.0
0.0
Total EA €bn
574.7
8908.5
6.5%
€ bn
-76.6
-17.6
-9.1
-6.4
-5.3
-1.9
-0.2
0.0
0.1
2.8
11.8
15.8
34.6
52.0
0.0
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Professor
Stefan
Collignon
4. Implementation.
• A European law (directive) could oblige
financial institutions to lend only to public
entities if they can present borrowing
permits for the required amount.
– Markets as police, not bureaucracy
• Ensures that no government can violate
the budget position, which was considered
optimal by the democratic institutions of the
European Union.
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Professor
Stefan
Collignon
• Thus, contrary to the bureaucratic
surveillance proposed by European
authorities, the system of borrowing
permits would give democratic legitimacy
to defining the desirable aggregate budget
position for the Euro Area, and decentralize
the policy implementation
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Professor
Stefan
Collignon
Crisis management
• Providing liquidity to MS governments at
reasonable conditions
– Not solvency issue which is concern of SGP
• Problem: distortion by market intervention
• Solution: Union Bond to generate portfolio
effect of euro-liquidity risk.
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Professor
Stefan
Collignon
Conclusion
• Europe has many common goods that
affect all citizens
• They must be represented in governance
• Only the EP can provide this legitimacy
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Professor
Stefan
Collignon
Thank you!
Vive la République européenne!
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