Tuesday, September 25, 2012

Hollande, the Germans and political union

Before becoming French president, Franҫois Hollande did not appear to take much interest in the EU. However, in his youth he was a protégé of Jacques Delors, the French left’s great European, and his instincts seem to be broadly pro-EU. Hollande’s arrival in the Elysée has not led to dramatic changes in France’s EU policy, but a new approach is emerging. Compared with Nicolas Sarkozy, Hollande is less hostile to EU institutions, more willing to work closely with the southern European member-states and, most crucial of all, keener to demonstrate that France does not slavishly follow German wishes.

Hollande knows very well that a strong Franco-German relationship is indispensable to sorting out the problems of the eurozone in particular and the EU in general. But, as officials in the Elysée, the finance ministry and the foreign ministry made clear during recent conversations, Hollande wants a more balanced Franco-German relationship.

These officials emphasise that the ‘Deauville’ model of Paris-Berlin relations has been scrapped. At the Franco-German summit in Deauville in October 2010, Chancellor Angela Merkel made Nicolas Sarkozy, the then French president, accept the principle that private-sector holders of sovereign bonds of countries needing a bail-out should suffer losses. At an EU summit a few days later, the ‘Merkozy’ duo imposed that principle on their fellow leaders, who feared that its adoption would destabilise sovereign bond markets (which is exactly what happened).  At many other summits, too, Merkel and Sarkozy set the agenda or delayed decisions while they consulted each other. This upset other member-states and the EU institutions.

Hollande understands what drove Sarkozy towards followership vis-à-vis Merkel: for several years the German economy had out-performed France’s – notably on unit labour costs, employment, export performance and growth – so that the relationship had become unbalanced.

Hollande has therefore sought to strengthen France’s position relative to Germany in a number of ways. One is to consult other countries – especially Italy and Spain – and the European Commission on key issues. Sarkozy avoided getting too close to ‘problem’ member-states, lest the financial markets associate France with southern Europe. But Hollande does not have that hang-up. At his first summit, when he lined up with Italy’s Mario Monti and Spain’s Mariano Rajoy, the Germans were not amused, but they have now – according to the French – seen that a more inclusive system of leadership is in their interests. Hollande’s officials claim that he has not been and will not be so crude as to try and put together a bloc to counter Germany.

Hollande’s second way of strengthening French influence is to retain the austere fiscal targets that he inherited, notably by limiting the budget deficit to 3 per cent of GDP in 2013. Some government officials believe that this and the budgetary targets adopted by other EU governments – partly because of German pressure – are excessive and counter-productive. They nevertheless say that France needs to stick to 3 per cent in order to win credibility in Berlin. They think that as long as economic growth this year holds up to the predicted 0.8 per cent, the target is feasible. Although the current emphasis is on shrinking the budget deficit through tax rises, in future years spending cuts will predominate, officials say.

The third way of raising France’s standing is to improve the country’s competitiveness. Outside France, the president and his ministers are not perceived as being particularly committed to structural economic reform. During the presidential election campaign, Hollande avoided the subject. But some of the key officials in Paris say that the government is determined to reduce unit labour costs and to reform labour markets. If the current negotiations between the social partners on labour market reform break down, they say, the government will legislate. Many previous French governments have declared their commitment to such reforms, only to back down in the face of street protests. But Hollande’s people are adamant that he will stand firm – and it is arguable that over the past 30 years, Socialist governments have reformed more boldly than Gaullist governments.

Having got off to a rocky start with Merkel – who refused to meet him before the French presidential election – Hollande now has a good working relationship with her, his advisers say. Although personalities matter much less than interests in Franco-German relations, this pair may end up with a more affable relationship than Merkel and Sarkozy had. The dour Merkel, who likes to move slowly and cautiously, and the mercurial Sarkozy, who is impatient and partial to bold initiatives, were not natural soul-mates. Hollande, however, tends to be soft-spoken and a consensus builder – as is Merkel.

French officials claim that Hollande helped to persuade Germany’s leaders to shift their thinking on the euro crisis. For example, Merkel and Wolfgang Schäuble, her finance minister, have rallied behind Mario Draghi, the president of the European Central Bank (ECB), and his scheme to intervene in bond markets to lower the borrowing costs of peripheral countries (but the French worry that Jens Weidmann, the Bundesbank president who opposes the scheme, is winning the public relations battle inside Germany). The German government has also made clear that – like France – it wants Greece to stay in the euro, for fear of the consequences of its departure.

But many tensions remain between Paris and Berlin. The French support the Commission’s proposals for an EU-wide system of bank supervision that would cover all Europe’s banks; the Germans want only the largest, cross-border banks to be covered – apparently oblivious to the fact that many of the problems in European banking emerged in small or medium-sized banks. Germany seems to want to slow down an agreement on EU banking supervision, although the European Stability Mechanism (the permanent bail-out fund that will soon be operational) cannot help banks in difficulty until the new supervisory regime is in place. Furthermore, the German government is counselling Spain not to activate the Draghi mechanism to intervene in bond markets, perhaps because it fears a vote in the Bundestag; the French believe that the mechanism must be used soon, lest the financial markets cease to believe in its potency.

On longer-term issues of eurozone governance, too, there is a huge distance between Paris and Berlin. The French worry about the incoherence of the way the eurozone is managed – nobody is in charge, and governments do not know what different leaders have said to each other. They want the Eurogroup (the regular meetings of eurozone finance ministers) to provide some of the missing leadership by appointing a full-time president and by introducing majority voting. But some Germans worry that a stronger Eurogroup could erode the independence of the ECB.

The French think that, because they have swallowed the painful medicine of the fiscal compact – that they will soon ratify – and thus given away some of their cherished budgetary sovereignty, Germany should be keener to discuss ‘eurobonds’ (the mutualisation of European debt), pan-European bank deposit insurance and a bank resolution regime. But Germany still says no to those ideas, since they would cost it money.

Another broad disagreement is over the woolly concept of ‘political union’, which is moving up the EU’s agenda. On September 12th, José Manuel Barroso, the Commission president, called for a “federation of nation-states” when he spoke to the European Parliament. He promised proposals for a new EU treaty before the 2014 European elections.

In Berlin, there is much talk of ‘more Europe’, treaty change and political union. Indeed, a reflection group led by Guido Westerwelle, the German foreign minister – with the participation of eight other foreign ministries – published a report on September 17th on Europe’s future. This proposed classic federalist solutions to the EU’s problems: majority voting on foreign policy, a stronger role for the High Representative for foreign policy, a European army, an elected Commission president, a stronger European Parliament and a new system for ratifying treaties (to prevent small countries holding back everybody else). Many of the report’s proposals would require treaty change. However, several ministers taking part in the Westerwelle group have dissociated themselves from certain proposals, and some of the governments not involved have reacted coolly.

In Paris there is no enthusiasm for the concept of political union. Although France was involved in the Westerwelle group – sending a junior minister, rather than the foreign minister – some French officials talk disdainfully of it. “When the EU is in crisis, the Germans have a Pavlovian reaction and call for political union, without really meaning it,” said one. Another opined that Merkel did not support many of the ideas in the Westerwelle report and that the Germans did not know what they wanted from treaty change (in many other capitals, too, there is scepticism about Merkel’s commitment to the report).

The negotiation of a major new EU treaty would have to be preceded by a convention on the future of Europe (“a nightmare”, in the words of one French official) and followed by ratification in every member-state, with some holding referendums. The French are in no hurry to re-open institutional questions. In the words of one key official: “The EU spent the last decade dealing with treaty changes and institutions, when it should have been worrying about the ‘Lisbon agenda’ [on competitiveness] and the flaws in eurozone governance”. The EU’s priority, the French believe, should be fixing the euro: the 17 that use it should agree on whatever arrangements are necessary, and then allow others that wish to join the euro to participate later.

Some French officials think they can postpone a major new EU treaty for two or three years. But others, notably in the finance ministry, are less hostile to treaty change; they know that neither a stronger Eurogroup nor EU-wide deposit insurance can be established under the current treaties.

Despite their wariness of political union, French officials are thinking about the future of EU institutions. They recognise that the increasing centralisation of decision-making on eurozone issues creates a greater need for democracy and accountability at eurozone level. Some officials talk of a new body of national parliamentarians and MEPs that could approve key appointments and hold to account eurozone decision-makers such as the Eurogroup president, or the ECB body that will be responsible for bank supervision. That idea is similar to a recommendation in the Westerwelle report, as is the view of many French officials that MEPs from countries outside the euro should not be allowed to vote on euro issues.

In general, the people around Hollande and finance minister Pierre Moscovici are less inter-governmentalist than were Sarkozy’s advisers. Some of them view the European Parliament quite sympathetically, though they do not think that in its current form it can play much of a role in eurozone governance. They are less keen than Sarkozy was to give national parliamentarians a role in EU decision-making. They criticise the Commission less viciously than Sarkozy’s people, though they complain about the quality of its leadership and its tendency to interfere on little things that should be left to member-states. They accept, albeit reluctantly, that the Commission must play a role in supervising the economic and budgetary policies of eurozone member-states. Hollande’s relatively communautaire approach puts him closer to traditional German thinking than to Gaullist thinking.

So far, Hollande’s new approach to Germany – working closely with it, but not following slavishly – seems to have been moderately successful. But in the long run, if he wants French influence in the EU to approach that of Germany, he will have to deliver on his promise to boost the competitiveness of the French economy.

Charles Grant is director of the Centre for European Reform

Friday, September 21, 2012

Time for a European Civil Liberties Union?

Today's EU faces retreat on several fronts. One is a possible break-up of the euro with unknowable consequences for the single market and the Union itself. Another is the apparent decay of the rule of law, democracy or media freedoms in certain member-states. Bulgaria, the Czech Republic, Hungary, Lithuania, Romania and Slovakia all show some symptoms of the latter, according to Freedom House, an NGO watchdog for democracy and civil liberties worldwide.

The EU's institutions have tried to react to such developments. The European Commission is taking Hungary to court over the plan by the prime minister, Viktor Orbán, to weaken the independence of the judiciary there. During the summer, José Manuel Barroso, president of the Commission, intervened to stop an arbitrary attempt by Romania's prime minster to remove his president, Traian Basescu, from power. And neither Romania nor neighbouring Bulgaria are likely to join the Schengen passport-free travel zone until their political and judicial cultures approach something resembling the EU norm.

The EU can shepherd its wayward democracies only so long as their governments risk losing power and status by being labelled second class members. In the past, this desire to stay at, or travel towards, 'the heart of Europe' gave EU membership a transformative power, especially over those countries which joined from 2004 onwards. Most have better records at implementing EU legislation than some long-standing members.

Now the eurozone crisis threatens to chip away at this benign influence. The Union may segregate into a top tier of tightly-integrated euro area countries and an outer rim of ten or so non-members. (Only five of those countries which joined after 2004 currently use the euro.) Despite a treaty obligation on new members to join, eurozone creditor countries are not keen to admit countries with poor governance records for fear of having another Greece in the club. Governments which feel condemned to be permanent outsiders, or which do not wish to adopt the euro while the crisis endures, are likely to feel less bound by the constraints of EU membership.

Hence other influences must be brought to bear to help copper-fasten the peaceful transition of central and eastern Europe to capitalist democracy and the rule of law. The region lacks the self-sustaining popular narratives that characterise the confident democratic traditions of Western Europe. Britain has its 'history of British liberty'; France, its self-image as 'the mother of human rights'; and Germany is rightly proud of the 'never again' protections enshrined in its Basic Law. By contrast, the countries of central and eastern Europe spent most of modern history under various forms of totalitarianism. (An honourable exception is democratic Czechoslovakia between 1918-1938.) This makes them vulnerable to a return of the political strongmen.

NGOs and other observers hope that Europe's courts can help prevent any such scenario. For example, the European Court of Justice (ECJ) in Luxembourg is gradually transforming itself from a tribunal that deals mainly with regulatory and EU staffing matters to more fundamental issues of rights and civil liberties. Its judges are getting to grips with the Charter of Fundamental Rights – made legally binding with the passage of the Lisbon treaty – and deliberating more on civil liberties as their writ expands to migration and security questions.

There are hazards in relying too much on judicial solutions, however. First, legal deliberations take time, and delays due to huge backlogs of cases can put effective justice out of reach for those seeking protection from corrupt or malicious regimes. In 2011, over 150,000 cases awaited a decision from the European Court of Human Rights in Strasbourg, a non-EU institution connected to the Council of Europe. The ECJ fears that its own caseload is also set to become unwieldy due to its expanded jurisdiction under Lisbon. Its president has called for an increase in the number of its serving judges.

Second, ordinary people struggle to access European courts. The European Court of Human Rights is only supposed to be a 'last resort': plaintiffs must have already tried and failed to get justice in national courts. (This rule is likely to be applied more strictly following reforms announced earlier this year.) And - except in very rare cases - citizens or civil society organisations cannot directly petition the ECJ at all. Access to the Luxembourg court is normally restricted to EU governments, institutions, or businesses impacted by the Union's regulatory decisions. Even if the ECJ investigates a breach of the Charter by a particular member-state, it cannot make the government in question desist from such behaviour while the facts of the case are established. This contrasts with the powers of the Strasbourg Court. (See this interesting paper from the Centre for European Policy Studies.)

More broadly, 'government by judges' is a precarious way to protect democracy or resolve political crises such as the recent shenanigans in Romania. No judiciary can protect and uphold rights indefinitely in the absence of a healthy political culture where civil liberties and independent checks on executive power are uncontested. One idea to aid the development of such a culture throughout the EU would be the establishment by liberal activists of a European Civil Liberties Union (ECLU). This could be modelled to some extent on the American Civil Liberties Union (ACLU), founded in the 1920s primarily to protect the right to free speech in the US. One of main goals of an ECLU should be to capture the spirit of the region's glorious emergence from communism after 1989 through a mix of grassroots activism, litigation, educational initiatives and public awareness-raising.

A central ECLU office might receive EU funding but its national chapters would mostly depend on volunteer efforts, philanthropy and membership drives organised by university associations and others. (The ACLU has some 500,000 members and a budget of over $100 million.) In some cases, there will be no need to establish new national organisations from scratch: existing bodies performing democratic watchdog functions could receive the organisation's support if they feel the need.

ECLU chapters could co-ordinate their activities across the region and share resources such as legal and campaigning expertise. They should act as a counterweight to a 'domino effect' in the region where political strongmen in one country are encouraged by the success of fellow travellers elsewhere. An annual plenary meeting of all European chapters could be held each October 2nd, the anniversary of the drafting of the Charter.

In time, an ECLU could expand anywhere there was a need to open a local chapter or support a pre-existing organisation. Western Europe has plenty of foibles of its own: the treatment of migrants in Italy, the rise of hate crime in Greece and the weakened state of civil liberties in some countries due to disproportionate counter-terrorism measures. But its first priority should be central and eastern Europe – a region where the rule of law cannot yet be taken for granted – as the EU itself goes through fundamental change.

Hugo Brady is a senior research fellow at the Centre for European Reform.