SUMMARY of the Joint Hearing AFCO-ECON On

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SUMMARY OF THE Joint Hearing AFCO-ECON on: 'INSTITUTIONAL ASPECTS OF THE NEW RULES ON ECONOMIC GOVERNANCE AND THE ROLE OF THE EUROGROUP' Tuesday 5 May 2015 - 9.30-12.30

9.30 - 11.00 - Panel 1: The role of the Eurogroup in the economic governance framework. Prof. Daniel Gros, Director of Economic Policy Studies CEPS, Brussels

Prof. Gros underlined the main issues concerning the need for prescriptive economic governance policy in time of crisis as well as during no-crisis-time. By referring to a statement made by the European Commission, he argued that economic policy coordination is crucial during a crisis situation. Furthermore, he argued that spillover effects are closely linked to the degree of crisis. According to Prof. Gros, the system should only be regulated in the event it is absolutely necessary, thus, prescriptive economic governance policy should be avoided in no-crisis-time. He also stressed that preventing crises by strengthening the financial system is crucial.

Prof. René Repasi, Scientific coordinator of the European Research Centre for Economic and Financial Governance of Universiteit Leiden

Prof. Repasi pointed out the fact that the Eurogroup operates in a special framework. On the one hand, the Eurogroup has currently an important role (the main task is to discuss and coordinate in the area of common currency) that has been recently significantly strengthened (by the so-called "six-pack" and then further by the "two- pack") - although it is not creating legally binding output. On the other hand, there are no transparency rules (e.g. minutes) and there is a lack of accountability, as the Eurogroup has no legal duty to inform about its activities. Moreover, he stressed that the Eurogroup president is not obliged to appear in front of any parliamentary body nor does he have to worry about any consequences if the Eurogroup makes a bad decision. Mr Repasi argued that, from a purely legal perspective, as it is an informal body, this lack of accountability can be accepted, but taking into consideration the significant de facto role played by this body, democratic accountability has to be strengthened (e.g. by making the Eurogroup accountable to the European Parliament). Mr Repasi warned of non-democratic intergovernmental decision making on the EU level. Furthermore, he addressed the need to have a definition and proper instruments for 'accountability', and stressed that the EP is the only possible forum which can exercise accountability on the EU level, as it is representing the Union citizens. He pleaded for not creating institutions which are just covering a part of the Union because the Eurozone and the Single Market are too closely linked to allow for such an institutional distinction.

1 Prof. Xavier Ragot, Président of Observatoire Français des Conjonctures Économiques OFCE Prof. Ragot argued that coordination has to be re-thought - he also pleaded for thinking about the subsidiarity principle. Prof. Ragot argued that coordination is useful in many areas, but he presented in particular three key areas which are linked to the common currency and require more coordination among EU Member States: nominal divergence in the EU area, capital flows and aggregate demand management. He admitted that coordination among states is always problematic, but coordination is crucial in Europe - he stressed the importance of it for the Eurogroup. To achieve more coordination, he proposed the creation of three independent bodies in each Member State, which should as well deal with labour dynamics and fiscal imbalances.

Discussion: In the discussion MEPs commented on the need for enhanced economic policy coordination in the three areas mentioned by Prof. Ragot but expressed doubts on how this goal can be achieved by a mechanism adding additional bodies to the existing institutional framework. Furthermore, they looked into the need for strengthening the tools at EU level in order to trigger binding actions on the national level. The idea that to achieve a real common Economic policy it is necessary to increase the resources, to have stronger fiscal capacity on EU level and stronger rules on EU level as opposed to national level, also emerged in the debate. Members also raised the question whether the Eurozone should shift from a rules- based system of coordination to an institution-based system of coordination - as this would mean a complete overhaul of the Treaty rules. Some commented that as long as the Union is composed of sovereign states, the only sensible way of coordination could be based on rules agreed on by all Member States. Another question raised concerned the need to have democratic representation of the Eurozone in the Parliament and how should the Eurozone/ non-Eurozone dichotomy be solved. Furthermore, some Members expressed conviction that the issues inside the Eurozone cannot be tackled without Eurozone institutions and that coordination would have been needed even if the Eurozone did not exist, as spill-over effects would have been present anyhow. Some Members demanded to check the compatibility of any measures taken in the framework of the crisis with the Charter of Fundamental Rights as fundamental rights are what the Union is based on. Lack of independent international impact assessment mechanism of the measures imposed on the Euro-zone members was another concerned expressed in the debate. Finally, the question regarding the possible institutional aspects of economic governance coordination in times of crisis and in times without crisis was also raised. Prof. Gros stressed again that it seems to be general agreement that there are different measures necessary during the crisis period and non-crisis period and the 2 coordination requires specific measures. In that event the EU interest should prevail over national interest. He stressed again that the spillover effects in the EU are much stronger and that what happens in the Euro area is important for non-EURO countries as well. Prof. Repasi pointed out that we are still talking about integration but we are facing disintegration. In his view the European Parliament is the best forum for accountability over economic governance. He also mentioned the proper instruments for accountability - access to information, right to ask questions, the obligations for those who are leading the institutions to appear in front of EP and the right to have a proper investigation (setting up an inquiry committee). He also stressed that each negative assessment has to have some relevant consequences. He as well stated that the Euro is a currency for the entire Union, because it influences the entire single market which consists of all Member States. Prof. Ragot stated that we need political coordination in those terms. From his point of view, the independence of bodies (for example tax authority) combined with national legitimacy is a proper tool.

11.00 - 12.30 - Panel 2: The institutional aspects of governance of the Eurozone by the Eurogroup: a democratic challenge. Prof. Paul Craig, University of Oxford

Prof. Craig argued that one has to distinguish between legitimacy and democratic accountability; he stressed that the Europgroup has formal legitimacy through the Treaty, however, the Euro Summit has no such formal legitimacy, even though nothing prevents the European Council to devote one particular meeting to Euro issues. The constitutional relevance of the European Fiscal Compact is far more complex, as it was concluded outside the confines of the Treaty of Lisbon. Moreover, Prof. Craig underlined the powerful position of the president of the Eurogroup, which is further enhanced by the fact he is also the president of the Board of Governors of the European Stability Mechanism. Mr Craig expressed his concern regarding the lacking accountability of executive bodies. Regarding crucial elements to ensure accountability, he referred to access to information and the availability of data; he also stressed the important role of the EP in this debate.

Dr Daniela Schwarzer, Senior Director of Research and Director of the Europe Programme, German Marshall Fund, Berlin Dr. Schwarzer focussed on the parliamentary component of the institutional set-up and the means to achieve better democratic legitimacy of economic governance in the Eurozone. The main actors in this respect are the Eurozone summit, the Eurogroup and the European Stability Mechanism. She emphasised the importance of adding the parliamentary component to the discussion. She pointed out that strengthening the National Parliaments' role may lead to turning them into veto players in trans-national context, given the example of the German Parliament. However, National Parliaments should be more involved in the trans- 3 European debate in order to prevent renationalisation of the debate at the national level. The parliamentary component exists but its functioning is not satisfactory. The goal is to create 'national ownership for European coordination'. The role of the EP in this respect was achieved so far through informal means, now we should think of ways how to improve its organisation. The Parliament should be able to provide policy guidelines in the economic and fiscal field as the EP is a place where this debate can take place. Since we have one currency, we can say that in this sense we have one economy, and in this situation the National Parliaments are not in the position to evaluate it because of their accountability to national constituencies and national constitutions. There is politicisation of the economic and fiscal coordination despite the initial intentions of pure rule-based process - it is a positive thing providing some leeway and room for interpretation - this is currently happening at the Euro summit, Eurogroup and Ecofin. However those issues call for a debate in the EP. On the matter of legitimacy in the Euro-area, Dr. Schwarzer pointed out that there is different understanding of this notion from the different perspectives, e.g. Greece considers illegitimate what interferes with national sovereignty in Germany - when the rules are not being implemented or being broken; smaller Member States think that they are under bigger pressure while the big MS get what they want. A formal way to increase legitimacy in the economic governance of the Eurozone should be found; solutions may be parliamentary involvement at EU and national level and maybe even a Treaty change.

Prof. Mario La Torre, Professor of Economics of Financial Intermediaries, La Sapienza University, Rome

Prof. La Torre focussed on the governance of the Single Supervisory Mechanism from financial and economic perspective as one of the elements of the banking union.

Prof. La Torre recalled the rationale of the banking union: the banking union was the answer to the financial crisis - based on the need to ensure a stabile banking system. This goal has been achieved through the revision of the prevention regulation and the introduction of a new architecture of the European banking supervision. The problematic issue is that it is based on two principles: the need for standardised rules and the need to adapt them to different financial intermediaries and different banking systems. The interactions between these two principles may impact the decision making process.

He mentioned that the new functioning of the SSM is based on joint supervisory teams composed of supervisors representing the European Central Bank and national competent authorities. Prof. La Torre addressed the question how a structure can be established which can ensure a democratic process and whether some critical issues exist.

4 Strategic conclusions: - problems to solve: standardised regulation, overlapping powers of the different authorities, their governance and interactions among them, the cost of the system, making it suitable for all Member States; - the first step could be a revision of the regulatory framework, then monitoring the SSM to provide transparency and democratic accountability; - supervisors have to play a greater role.

Discussion:

The idea of having a Commissioner responsible for the Eurogroup, who would also preside over the Eurogroup was raised during the discussion, along with the possible conflict of interest such a combined position might imply. Furthermore, Members questioned what would be the future relationship between Ecofin and the Eurogroup and possible clashes between the two, as well as how the powers of National Parliaments could be increased in economic governance. The idea to bring back the Stability Mechanism into the Treaty was also presented as well as the need to develop genuine budgetary capacity through normal parliamentary procedures. While awaiting a Treaty revision Members mentioned the need for an IIA to start making headway in economic governance and in improving the working of the Eurozone in the interest of the EU.

In the discussion it was also stressed that the purpose of improving the governance of the Eurozone was not only to overcome the crisis but also to make sure that the economic and monetary union can deliver the fundamental goals enshrined in the Treaties - growth, jobs, sustainable development. Some Members pointed out that there has been development in the executive power while the legislative power has stayed behind in the evolution of the Eurozone governance. Therefore, the question how should the legislative role in Eurozone issues be developed and whether there should be a division of competencies between the EP and the National Parliaments in that respect was also mentioned.

Members expressed support to the idea of creating a subcommittee in the Parliament to deal with Eurozone issues but reminded of the possible problems stemming from a distinction between the Member States of the Eurozone and the others.

It was also reminded that the Treaty on stability and economic governance was signed only by a group of Eurozone states and is yet prescribing solutions for the EU institutions as a whole, but it was accepted this way by the Member States and Institutions because the initial intention was for it to be a Protocol and not a separate Treaty.

Some Members stressed that the economic governance should go hand in hand with a political union and the EP should have more power to intervene and real own resources should be created, as this would give the Parliament a genuine role as co-legislator with regard to budgetary powers and could increase the democratic legitimacy of the Eurozone governance. 5 The question why in the intergovernmental period of European integration de facto we reach for international agreements instead of using the instruments from the Treaties for intergovernmental cooperation (like enhanced cooperation) was also raised. In this relation Members also questioned how to avoid adding to the intergovernmentalism and at the same time strengthening the National Parliaments' role in the European debate? Another question raised by members concerned the sufficiency of existing instruments to protect Member States from moral hazards in the newly established fiscal stance?

Regarding interegovermentalism, Mr Craig replied that the need to use international treaties was caused by political pressure and including that in the Lisbon Treaty was not possible at that time. From the constitutional perspective, the legitimacy of the Euro summits cannot stem from the Fiscal Compact. There is still tension between the Member States as to how much surveillance they are willing to delegate to the EU level. Regarding the role of the National Parliaments, he emphasised the need for an enhanced role in enforcing the "six-pack", the "two-pack" and the Fiscal Compact but by increasing their powers there will come increase of national interests as well.

Dr. Schwarzer replied that if there is fiscal capacity in the EU, there should be stronger parliamentary dimension on European level, especially concerning the fiscal stance debate. But National Parliaments should be also involved, even if the risk for renationalisation is there. She argued that there are already tiny elements of fiscal capacity emerging in the EU (like the ESM), so we should now focus on the process of institutional change and Treaty consolidation. If we move ahead with integration we will see a natural process of Eurozone deepening. She also raised the question whether the Junker Plan should be included in this debate.

Prof. La Torre pointed out the need for strong monitoring of the process of integration of the banking union. The process started 30 years ago with simple rules which have transformed into complex rules and restricted governance now. This can make it very difficult to find a good mediation process. He also mentioned that binding mediation has never been used and we could solve the problem by more flexible approach to the regulation in order to facilitate it and develop a common culture in this respect as this is crucial for the success of the mediation process.