House of Lords - The Role of the National Parliaments in the European Union

The Role of the National Parliaments in the European Union - European Union Committee Contents

Chapter 6: Economic and financial governance

'GENUINE ECONOMIC AND MONETARY UNION'

142. Growing tensions regarding the democratic legitimacy of the EU are particularly apparent in relation to economic and financial affairs. The drive towards greater integration in the wake of the eurozone crisis has placed the EU's democratic processes under immense strain.

143. The EU institutions acknowledged as much in their 2012 proposals for 'Genuine Economic and Monetary Union', their vision for a strong and sustainable single currency.[120] The proposals have four pillars:

· an integrated financial framework;

· an integrated budgetary framework;

· an integrated economic policy framework;

· democratic legitimacy and accountability.

144. On 14 February 2014, we published our report into 'Genuine Economic and Monetary Union' and the implications for the UK.[121] This report considered the first three of these pillars. The fourth pillar, described as "ensuring the necessary democratic legitimacy and accountability of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity", is of direct relevance to this inquiry.

145. The Commission's 2012 'Blueprint for a Deep and Genuine Economic and Monetary Union'[122] emphasised that any work on democratic legitimacy as a cornerstone of Genuine Economic and Monetary Union needed to be based on two basic principles:

· that in 'multilevel' governance systems, accountability should be at the level where the executive decision is taken, whilst taking due account of the level where the decision has an impact;

· that in developing EMU as in European integration generally, the level of democratic legitimacy always needs to remain commensurate with the degree of transfer of sovereignty from Member States to the European level. This holds true for new powers on budgetary surveillance and economic policy as much as for new EU rules on solidarity between Member States. Briefly put, further financial mutualisation requires commensurate political integration.

146. The Commission argued that the first principle meant that it is the European Parliament that primarily needs to ensure democratic accountability for any decisions taken at EU level, in particular by the Commission. A strengthened role for EU institutions would therefore have to be accompanied by a strengthened role for the European Parliament.

147. As with the other pillars of 'Genuine Economic and Monetary Union', the Commission made a distinction between short-term and long-term steps. In the short term, it foresaw enhanced involvement of the European Parliament in the European Semester,[123] for instance through parliamentary debates before the European Council discusses the Commission's Annual Growth Survey and before the adoption by the Council of the country-specific recommendations (CSRs). The Commission and the Council could be present at inter-parliamentary meetings to be held between representatives of the European Parliament and of national parliaments during the European Semester. Members of the Commission could also attend debates within national parliaments on the EU's CSRs. The Blueprint suggested that the European Parliament could set up a special committee on euro matters. It also cited the proposed nomination by political parties of candidates for the office of Commission President, as is taking place in the context of the May 2014 European Parliament elections.

148. Under the heading of "issues for discussion in the case of treaty amendment", the Commission also set out a number of longer-term proposals. These far-reaching proposals included a new power to require a revision of a national budget in line with European commitments, by legislative act agreed by co-decision; granting special decision-making powers to a European Parliament 'euro committee'; strengthening the Eurogroup[124] to make it responsible for decisions concerning the euro area and its Member States; strengthening the scrutiny role of the European Parliament in relation to the European Central Bank and the European Stability Mechanism; and, in the event of a full fiscal and economic union with a substantial central budget, giving the European Parliament reinforced powers to co-legislate on autonomous taxation and provide the necessary democratic scrutiny for all decisions taken by the EU's executive.

149. The Commission acknowledged that the role of national parliaments would always remain crucial, partly in ensuring legitimacy of Member States' actions in the Council, but especially in terms of the conduct of national budgetary and economic policies, even if these were more closely coordinated by the EU. The Commission also stressed that co-operation between the European Parliament and national parliaments was valuable in providing for mutual understanding and common ownership for EMU in a 'multilevel' governance system. However, inter-parliamentary co-operation did not ensure democratic legitimacy for EU decisions. That, according to the Commission, would require a parliamentary assembly representatively composed in which votes can be taken. It emphasised that the European Parliament, and only the European Parliament, is that assembly for the EU and hence for the euro.

A DEMOCRATIC DEFICIT?

150. Several of the witnesses to our 'Genuine Economic and Monetary Union' inquiry warned of a growing democratic deficit in the wake of the financial crisis,[125] and suggested that this deficit manifested itself in two specific ways.

151. The first was a lack of democratic consent for the so-called 'austerity agenda' being implemented across much of the EU periphery, and a lack of support in creditor states such as Germany for some of the solutions put forward, such as debt mutualisation. The political instability seen in many Member States in recent years is a testament to such tensions. Nigel Farage MEP, leader of the UK Independence Party (UKIP), questioned whether democracy could survive the policy of internal devaluation being imposed on the likes of Spain and Greece.[126] Professor Otmar Issing, Centre for Financial Studies, Goethe University, warned that any steps towards debt mutualisation without commensurate democratic legitimacy risked undermining the principle of "no taxation without representation".[127]

152. Such tensions were particularly apparent in the context of new tools for EU economic surveillance, notably the European Semester. Sharon Bowles MEP, Chair of the European Parliament Economic and Monetary Affairs (ECON) Committee, acknowledged that the European Semester was a sensitive issue, noting that the Commission often examined national budgets before national parliaments, leading to a sense of disempowerment.[128]

153. Dr Daniela Schwarzer, Senior Associate, German Institute for International and Security Affairs (SWP), warned that the current economic surveillance framework was too technocratic, lacked legitimacy, and made "a very left policy impossible for a member state". She concluded that "the attempt to depoliticise economic policymaking is not compatible with the way national democracies should work".[129]

154. The second problem was the asymmetry between the growing power of supranational institutions such as the ECB, the Commission, the Eurogroup and the 'Troika'[130], and their lack of democratic accountability. Nigel Farage MEP argued that the roles of eurozone national parliaments in deciding and approving national budgets were being eroded by Genuine Economic and Monetary Union, "with control being drawn to EU institutions which are further removed from the citizen and have accordingly less democratic legitimacy".[131]

155. Professor Willem Buiter, Chief Economist, Citigroup, told us that he had "a major problem with the growing role of institutions such as the European Commission and the European Central Bank, which basically are run by unelected technocrats without political legitimacy", adding that "there has been, and there promises to be in the next few years, a major increase in the power of these institutions without any commensurate increase in their accountability to the electorate".[132] The European Parliament's ECON Committee has been engaged in a major piece of work examining the role of the 'Troika', noting that many citizens of the EU sense a lack of accountability and transparency in its working methods.[133]

156. Our witnesses were sceptical as to whether the 'Genuine Economic and Monetary Union' proposals, at least those envisaged in the short-term, could provide a solution. Katinka Barysch, Deputy Director, Centre for European Reform, cautioned against the idea that the EU's democratic deficit could be closed through a "quick institutional fix" to what is a "very, very deep political problem". She did not think that "the people in Europe will start loving Europe again if the European Parliament has a debate on the Commission's annual growth survey ahead of the European semester".[134]

PROVIDING DEMOCRATIC CONSENT: THE ROLE OF NATIONAL PARLIAMENTS

157. Several of our witnesses stressed that the role of national parliaments needed to be enhanced if democratic legitimacy was to be restored. Sir Nigel Wicks cited the Commission Blueprint's acknowledgement of the role of national parliaments, but said that "when you read the rest of the document you see that it forgets that statement. It is a centralising document … I am not criticising the European Parliament, which in many ways is a very effective scrutiniser of legislation. … But this issue of consent comes from national parliaments rather than the European Parliament".[135]

158. Mats Persson, Director, Open Europe, agreed that "national parliaments simply have to be involved to a much greater extent … prior to decisions being made". This would prevent a repeat of the "ridiculous situation" in recent years, "where EU leaders agree to something during a panic-stricken weekend and then they spend months, or even years … to try to figure out what they actually agreed, because their national parliaments have uncomfortable questions".[136]

159. In a speech to the Vilnius COSAC in October 2013 Eva Kjer Hansen, Danish Folketing, stated that, while "both the European Parliament and national parliaments must play a leading role", it was essential for national parliaments to be fully involved in the EU's democratic framework for economic governance.[137]

160. On the other hand, Graham Bishop argued that "the starting point has to be the European Parliament … we have a parliament that works. … It needs to work better and be seen by the citizens, the voters, as more relevant." He said that the only practical way in which the ECB could be accountable was for the ECB President to go to Brussels and appear before the ECON Committee. The idea that he could go around 28 different countries was not realistic. National Parliaments had a key role to play, but in terms of holding their own executive to account.[138]

161. Sharon Bowles MEP stressed that the European Parliament was seeking to keep national Parliaments as involved as possible in the evolving system of economic governance. On the Blueprint's proposal for a European Parliament euro committee, Mrs Bowles said that it was not easy to detach "eurozone only" issues from broader EU concerns. In addition, she pointed out that many non-eurozone Member States possessed considerable expertise.[139] Syed Kamall MEP predicted that there would be an attempt to appoint such a Committee in the new parliamentary term. He was concerned that this would set an unhelpful precedent.[140] Of course, any such move would have significant consequences for non-eurozone Member States such as the UK.

162. In early February 2014 it was reported that the European Parliament was considering options for enhancing euro area governance after the 2014 elections, including increasing the resources available to the ECON Committee, or forming a Sub-Committee to scrutinise EMU matters. For the Sub-Committee option, it was reported that it would be left to the political groups whether or not to restrict membership to MEPs from euro area Member States.[141]

Conclusions

163. The political and economic reforms required in the wake of the eurozone crisis have challenged the EU's democratic framework. The Commission asserts that "accountability should be ensured at that level where the respective executive decision is taken, whilst taking due account of the level where the decision has an impact".142] Given the dramatic consequences of the crisis on the lives of ordinary citizens across the EU, this is over-simplistic and unrealistic.

164. An asymmetry has developed between the growing powers of key institutions such as the Commission, the ECB, the Eurogroup and the 'Troika', and the ability of citizens to hold them to account for their actions. As political tensions across the EU testify, a serious democratic deficit now exists. The European Parliament has a vital role to play in holding EU institutions to account.

165. The proposal for a euro area Sub-Committee of the European Parliament would have significant negative consequences. First, it could undermine the unified structure of the European Parliament. Second, it risks losing the perspective and expertise of parliamentarians from outside the eurozone. Third, it risks exacerbating divisions between eurozone and non-eurozone Member States, with the concomitant danger that those in one group propose policies that are not in the interests of those in the other. This is of particular concern for the UK.

166. While the European Parliament does have a key role to play, the principle of democratic accountability can only be upheld if national parliaments also have an enhanced role. We are therefore extremely concerned at how little emphasis is placed on the role of national parliaments in the EU institutions' proposals for 'Genuine Economic and Monetary Union'.

167. While we welcome moves towards greater inter-parliamentary co-operation between the European Parliament and national parliaments, they are not enough. National parliaments must have more effective purchase on the steps towards enhanced economic surveillance, as encapsulated in the European Semester. This is an essential element of the key role of national parliaments in scrutinising the economic and financial policies of their national governments. Means must be found to ensure that EU institutions are accountable not only to the European Parliament but also to national parliaments, in particular when such significant decisions about their future are being taken. Further steps towards greater eurozone integration are likely to follow in the years to come. Unless steps are taken to strengthen national parliaments' role in oversight of such developments, the democratic foundations of the EU could be undermined.

120 Van Rompuy, H., President of the European Council (5 December 2012), Towards a Genuine Economic and Monetary Union. The report was prepared by President Van Rompuy in close collaboration with the Presidents of the European Commission, the Eurogroup and the European Central Bank, colloquially known as the 'Four Presidents'. Back

121 House of Lords European Union Committee, 'Genuine Economic and Monetary Union' and the implications for the UK (8th report, Session 2013-14, HL Paper 134). This inquiry was undertaken by the Sub-Committee on Economic and Financial Affairs. Back

122 COM(2012) 777 final: A Blueprint for a Deep and Genuine Economic and Monetary Union: Launching a European Debate. Back

123 The European Semester is the EU-level framework for co-ordinating and assessing Member States' structural reforms and fiscal policy, and for monitoring and addressing macroeconomic imbalances. It begins with the publication of the Annual Growth Survey, in which the Commission sets out the key economic policy priorities for the year to come. EU leaders consider the report in March and agree on a common direction for fiscal and structural policies as well as financial sector issues. In April, Member States report to the Commission on the specific policies they are implementing and intend to adopt in order to boost growth and jobs, prevent or correct macroeconomic imbalances, and the concrete measures they plan to ensure compliance with the EU's fiscal rules. The Commission then assesses the plans of the Member States and makes a series of country-specific recommendations to each of them. These policy recommendations are discussed between Member States' Ministers in June, endorsed by EU leaders in July, and incorporated by governments into their national budgets and other reform plans during the National Semester. See http://ec.europa.eu/economy_finance/economic_governance/the_european_ semester/index_en.htm. Back

124 The Eurogroup is an informal body that brings together the finance ministers of countries whose currency is the euro. Back

125 Evidence to the Genuine Economic and Monetary Union inquiry. See Professor Rosa Lastra; Elisa Ferreira MEP, Q 159. All references to written and oral evidence in Chapter 6 of this report are to the evidence collected for the Genuine Economic and Monetary Union inquiry. This evidence is available at the webpage of the Sub-Committee on Economic and Financial Affairs, www.parliament.uk/hleua. Back

126 Nigel Farage MEP. Back

127 Q 299. Back

128 Q 210. Back

129 Q 240. Back

130 In this context the 'Troika' comprises the Commission, ECB and IMF. Collectively they have been responsible for negotiations with indebted Member States on policies that are needed to put their economies back on the path of sustainable economic growth and job creation. Note that a very different 'Troika' is cited in relation to COSAC in Chapter 5 of this report (Box 4 and paragraph 119). Back

131 Nigel Farage MEP. Back