What Political Legitimacy for a Reinforced EMU?

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The Future of the Economic and Monetary Union Priorities and Prospects for Reform Amsterdam, 8 December 2017 European Research Centre for Economic and Financial Governance euro-cefg.

1 The Future of the Economic and Monetary Union Priorities and Prospects for Reform Amsterdam, 8 December 2017 European Research Centre for Economic and Financial Governance euro-cefg.eu RESEARCH FELLOWS What Political Legitimacy for a Reinforced EMU? Fabian Amtenbrink (Scientific Director EURO-CEFG) Casper de Vries Stefaan van den Bogaert Leiden University Matthias Haentjens Leiden University Markus Haverland Klaus Heine Madeleine Hosli Leiden University Bram Klievink Delft University of Technology Alessio M. Pacces René Repasi Scientific Coordinator EURO-CEFG)

2 Identifying the Legitimacy Gap of EMU

3 Legitimacy of EMU before the crisis EMU Economic Union Convergent Economic Policies Broad Economic Guidelines Sound Budgets MTO 1.0% of GDP Avoiding Excessive Deficits Annual Deficit 3% of GDP Debt 60% of GDP National Governments National Parliaments National Courts European Parliament & Council Foundations of Accountability Instruments of Accountabiliy Review of Arbitrariness Full Review Foundations of Accountability Monetary Union Price Stability ECB CJEU Review of Arbitrariness

4 Legitimacy of EMU before the crisis Incapacity of EMU to address the economic interdependence of national democracies created by economic globalisation and EU integration National democratic decision-making takes decisions that affect many living outside of the borders of that nation-state; National democratic decision-making cannot control many decisionmaking processes taking place outside of the borders of the nationstate that affect national polities but that; National democratic decision-making is committed to the national interest and does, hence, not take the interests of other EU Member States into account.

5 Legitimacy of EMU before the crisis Incapacity of EMU to balance conflicting demands of EU law Specialising on the comparative advantage (internal market) but having resilient national economies in a situation of an asymmetric shock (affecting one economic sector) (monetary union) Procyclical budgetary policies (budget control) but establishing shock-absorbers financed by national budgets to be activated in crisis times (monetary union) Refinancing of public budgets on private financial markets (budget control) but no monetary policy instruments (monetary union) and not capital controls (internal market) in order to react to market failure and to the closure of market access

6 Legitimacy of EMU before the crisis Both incapacities have the potential of undermining national democratic decision-making because national democracies cannot deliver what they promise (selfdetermined decision-making) because the voters voice might be overruled by market reactions decisions of other national legislators

7 Legitimacy of EMU during and after the crisis EMU 2.0 Economic Union Convergent Economic Policies Sound Budgets Avoiding Excessive Deficits Macroeconomic Imbalances Fiscal Stability National Governments ESM National Parliaments National Courts National Parliaments European Parliament Foundations of Accountability Instruments of Accountabiliy Review of Arbitrariness Full Review ex ante control Foundations of Accountability CJEU Review of the COM Price Stability European Parliament & Council Foundations of Accountability Monetary Union Secondary Objectives ECB CJEU Review of Arbitrariness

8 Legitimacy of EMU during and after the crisis Crisis added to the legitimacy gap at the level of national democracies a legitimacy gap at the level of the EU Soft law policy goals (economic policy coordination) turned de facto into hard law policy goals because of the threat of sovereign default and the need of financial assistance democratic deficiencies in defining these policy goals turn into democratic defaults democratic deficiencies in supervising the enforcement of these policy goals turn into democratic defaults Pursuit of secondary objectives in monetary policy led to a politicisation of the ECB that conflicts with its independence

9 Legitimacy of EMU during and after the crisis Faces of the additional legitimacy gap national democracies cannot deliver what they promise (selfdetermined decision-making) voters voice appears to be overruled by decisions of a federalist executive (ECB, Commission, ESM [= Eurogroup]) that relies on a European interest (protecting the Euro) no parliamentary control of this federalist executive limited judicial control of this federalist executive national democratic externalities transform from undermining national economic policy preferences into reducing national budgetary capacities (by the way the ESM is financed)

10 Enhancing the Political Legitimacy of EMU

11 Enhancing the Political Legitimacy of EMU Creating capacities to address the interdependence of national democracies Creating capacities to balance the conflicting demands of EU law Allowing for larger national autonomy to address these demands? Reforming Structural Funds (to allow for sustainable market transformation) European Unemployment Benefits Scheme (to address asymmetric shocks) Fiscal Capacity (to allow for capacity-building in ME and to address symmetric shocks) Debt Mutualisation (to reduce market failure when refinancing government debt) Establishing Parliamentary control of the federalist executive Allowing for a fully-fledged judicial control of the federalist executive

12 Enhancing the Political Legitimacy of EMU Establishing Parliamentary control of the federalist executive Which Parliament(s) should control? Tentative reply: The Parliament that represents the interest an executive entitiy invokes and/or relies upon Federalist Executive (in terms of EMU: ESM/EFSF/Troika) invokes a European interest (protecting the Euro as the currency of the EU): European Parliament Federalist Executive relies upon national funds: National Parliaments Dual-hatted Parliamentary control It should be noted that Parliamentary control is not in itself closing the legitimacy gap Core question: Can the policy goals pursued by EMU be justified by reference to the beliefs of citizens?

13 Accountability of Executives in the EMU Economic Policy Coordination at EU level

14 Policy Goal Step Legal act EP Fiscal Stability Definition Compliance ESM/EFSF/EFSM Troika No EP Avoiding Excessive Deficits Definition Compliance Art. 126 TFEU & Protocol (No. 12) Excessive Deficit Procedure Treaty & CNS Eurozone Governance Sound Budgetary Policies Definition Compliance Reg. 1466/97 & TSCG COD & No EP Avoiding Macroeconomic Imbalances Definition Compliance Reg. 1176/2011 COD Convergent Economic Policies Definition Compliance NLE

15 Legal act EP Reform ESM/EFSF/EFSM Troika Art. 126 TFEU & Protocol (No. 12) Excessive Deficit Procedure Reg. 1466/97 & TSCG Reg. 1176/2011 No EP Treaty & CNS COD & No EP COD NLE Transfer of ESM into EU law IIA on the IIA on the Transfer of TSCG into secondary law IIA on the IIA on the Convergence Code IIA on the

16 Legal act EP Reform ESM/EFSF/EFSM No EP Transfer of ESM into EU law Transfer of ESM into EU law Troika IIA on the Transfer of TSCG into secondary law Art. 126 TFEU & Protocol (No. 12) Treaty & CNS Convergence Code Excessive Deficit Procedure IIA on the IIA on the Reg. 1466/97 & TSCG COD & No EP Transfer of TSCG into secondary law IIA on the Reg. 1176/2011 COD IIA on the NLE Convergence Code IIA on the

17 Democratic Scrutiny of the Eurogroup

18 Democratic Scrutiny of the Eurogroup More transparency: Including the Eurogroup into Regulation (EC) No 1049/2001 on public access to documents More personal accountability: Merging the president of the Eurogroup and the president of the Board of Governors of the ESM with Commissioner for EMU President of the Eurogroup becomes personally accountable to the European Parliament as a member of the Commission Maybe: Modifying the IIA with the Commission in order to oblige the president of the Commission to make use of his/her right to request resignation of single commissioners if the president of the Eurogroup is concerned (exception to the principle of collective responsibility)

19 Quick Assessment of the Sinterklaas Package

20 Sinterklaas Package Transformation of the ESM into EMF Defintion of Policy Conditionality (Articles 12/13 of EMF-Statute): Synchronisation of MoU with Macroeconomic Adjustment Programme under the Two Pack (= no approval by any Parliament) Compliance: Only information obligations vis-à-vis Parliaments; no instruments of accountability Transparency: Inclusion of EMF into Access to Documents regulation Yet: It will be a Union body Transformation of TSCG into EU law European Finance Minister

nl Phone: +49(0) 17775 11124 +31(0) 630770721 Fabian Amtenbrink (Scientific Director EURO-CEFG) Casper de Vries Stefaan van den Bogaert Leiden

21 Thank you for your attention European Research Centre for Economic and Financial Governance euro-cefg.eu RESEARCH FELLOWS Dr. René Repasi European Research Centre for Economic and Financial Governance (EURO-CEFG) Phone: +49(0) (0) Fabian Amtenbrink (Scientific Director EURO-CEFG) Casper de Vries Stefaan van den Bogaert Leiden University Matthias Haentjens Leiden University Markus Haverland Klaus Heine Madeleine Hosli Leiden University Bram Klievink Delft University of Technology Alessio M. Pacces René Repasi Scientific Coordinator EURO-CEFG)

The Completion of the EMU: The Road Ahead

The Future of Free Movement in Stormy Times European Research Centre for Economic and Financial Governance euro-cefg.eu Den Haag, 21 November 2017 RESEARCH FELLOWS The Completion of the EMU: The Road Ahead