EUROPEAN THINK-TANK REVIEW – XXXIV. (October 2014)

Written by | Thursday, October 30th, 2014
European Values

Interpreting the Stability and Growth Pact: Making Best Use of Existing Flexibility within the Rules
Alessandro Leipold (The Lisbon Council)

The aim behind the Stability and Growth Pact is to simplify and maintain the stability of the European Union’s economic and financial union. The instruments put forward by the Pact should also aid Europe’s crisis-plagued economy. That the economic crisis is not yet over is reflected in poor growth figures, high unemployment in some EU member states and the fears of a pending deflationary spiral. This study analyses the Pact’s potential to bring about greater economic growth in the EU.

A structural, fiscal and monetary policy mix is needed to definitely overcome the economic crisis. One of the relatively uncharted territories in this respect is the EU’s commitment to the “best use of the flexibility that is built into the existing stability and growth pact rules.” The implications and practical application of such a move remain disturbingly undefined. One of the central hurdles to be overcome in increasing the Pact’s flexibility is the frightful complexity of EU fiscal rules.

The authors of this study propose a three-point plan, focusing on existing clauses within the pact. The three clauses in question concern: 1) exceptional circumstances, 2) structural reforms and 3) public investment. First, the European Council should recognise the murky situation of the euro zone as an exceptional circumstance, thereby providing the European Commission with leeway to apply the related flexibility and lifting any uncertainty regarding European Council approval. Individual member states could then draft their own stabilisation programmes.

Second, the Council should launch a coordinated structural reform plan at euro-area level, possibly starting with a joint reduction in the tax wedge. Finally, the European Commission should revisit the specification of the investment clause, extending potential eligibility to all countries and adopting the European Parliament’s call to exclude, permanently and unconditionally, all national co-funding of EU-supported investments from the fiscal indicators used under the stability and growth pact. The aforementioned proposals are only some of the many policies required to mitigate Europe’s economic troubles.

(The study can be downloaded here: http://www.lisboncouncil.net/publication/publication/111-interpreting-the-stability-and-growth-pact-making-best-use-of-the-existing-flexibility-within-the-rules.html)

The Spitzenkandidaten Process Has ‘Presidentialised’ the Commission, but Only Time Will Tell Whether It Allows for Better Representation of Citizens’ Views
Andrew Glencross (LSE European Politics and Policy Blog)

The make-up of the new European Commission was announced by Jean-Claude Juncker on 10 September. The appointment of Juncker himself came on the back of the so-called Spitzenkandidaten process, whereby the party groups in the European Parliament first selected representatives to be the leaders of their campaigns for the pan-EU elections in May 2014. Hence, the best way to analyse this development is as a form of presidentialisation within the EU, potentially marking the transition to a new constitutional order characterised by a bottom-up political structure. However, this order is unlikely to be brought about in a single night, particularly given the indirect nature of Juncker’s appointment.

Nevertheless, presidentialisation does offer the potential for integrating a European demos by creating a new link between the governed and the governing. This will be most obvious in five years’ time, when party groups will again have to select their Spitzenkandidaten. Voters at that point will have the power to sanction Juncker for the policies pursued by his Commission. Another hope was that the Spitzenkandidaten would remedy an “elitist deficit” whereby popular views are under-represented in an otherwise remote, technocratic body. But the end result was the appointment, rather than direct election, of Juncker.

Equally important, future candidates for Commission President will seek to develop further their transnational campaigns in order to establish a policy mandate. A foretaste of this increased politicisation of the Commission via political contestation for the presidency can already be seen in Juncker’s guidelines for his College of Commissioners. For instance, in response to critics of EU austerity measures, he calls for a “social impact assessment” to be made whenever a new bailout is required for a Eurozone country.

Nevertheless, presidentialisation cannot be expected to engender constitutional agency overnight. The EU will have to find its own method for allowing political contestation to legitimise the constitutional evolution of a polity with changing boundaries between national autonomy and supranational competences.

(The study can be downloaded here: http://blogs.lse.ac.uk/europpblog/2014/09/10/the-spitzenkandidaten-process-has-presidentialised-the-commission-but-only-time-will-tell-whether-it-allows-for-better-representation-of-citizens-views/)

Elements of Europe’s Energy Union
Georg Zachmann (Bruegel)

European Union energy policy is guided by three objectives: sustainability, security of supply and competitiveness. In light of Europe’s growing energy dependence on Russia, continuing popular distrust of shale gas extraction methods and a disappointing global impact of emission reductions, the EU energy policy is generally not perceived as a success. The central problem is the EU’s lack of a complex strategy. As one solution, the study proposes that private contracts be established between low-carbon investors and the public sector to help maintain a united energy policy while increasing competitiveness and reducing environmental impact.

Functioning electricity markets need to be designed: products need to be defined and schemes for their remuneration need to be engineered. An efficient market design needs to include all parts of the relevant system. The first step is to ensure that national energy regulations are not used for domestic industrial or social policy. Given the substantial distributive effects, a European energy market requires accountable governance. The alternative would be to return to a system of more-or-less managed national electricity systems – with some unreliable cross-border exchanges of energy. This would only make the systems less efficient.

On its own, the market will not ensure a secure supply of energy: it typically goes for the cheapest available source, and in this sector this usually means dealing with unreliable and unstable actors. But managed approaches could crowd out private investment if not properly shielded from the market. Therefore, a compromise approach is proposed of a market for ‘reserve supplies’. Each domestic gas supplier would be legally required to maintain a certain amount of alternative supply. Suppliers would only be able to draw on these ‘reserve supplies’ in security crises following an official declaration. This system, the cost of which the domestic suppliers will largely pass through to their customers, should ensure security of supply for all at lowest cost and without undermining the internal market.

The internal emission trading market must also be reformed so as to eliminate its vulnerability to political interventions. In this regard, it is also necessary to improve the practical use of renewable resources as a way to reduce emission rates. At the moment, there is very little support for innovation in this field, which could harm the EU’s prospects of leading a future global market of renewable energy sources. In the next five years, the EU should also focus on increasing its energy efficiency. This feat could be accomplished through integration of national regulatory systems, but given the significant differences between them this objective will not be easily achieved. It may be wiser and more effective to allocate specific problems to regional, national, and transnational levels of governance according to their capacity to deal with them.

(The study can be downloaded here: http://www.bruegel.org/publications/publication-detail/publication/846-elements-of-europes-energy-union/)

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