A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Fudulu, Paul; Comanescu, Anton; Negrescu, Dragos; Prisecaru, Petre Research Report The required directions for EU's institutional development (deepening) related to its horizontal development (enlarging) Pre-Accession Impact Studies III, No. 8 Provided in Cooperation with: European Institute of Romania, Bucharest Suggested Citation: Fudulu, Paul; Comanescu, Anton; Negrescu, Dragos; Prisecaru, Petre (2005) : The required directions for EU's institutional development (deepening) related to its horizontal development (enlarging), Pre-Accession Impact Studies III, No. 8, European Institute of Romania, Bucharest This Version is available at: http://hdl.handle.net/10419/74629 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu European Institute of Romania – Pre-accession impact studies III Study no. 8 The required directions for EU’s institutional development (deepening) related to its horizontal development (enlarging) Authors: Paul FUDULU (chapters I and II) - coordinator Anton COMNESCU (chapters VII and VIII) Drago NEGRESCU (chapters IV-VI) Petre PRISECARU (chapter III) European Institute of Romania – Pre-accession impact studies III ________________________________________________________________________ Table of contents: I. THE ARGUMENTS FOR THE DEVELOPING OF EU INSTITUTIONS 4 I.1 THE SIZE 4 I.2 THE DEMOCRATIC DEFICIT 4 I.3 CULTURAL VALUES – A LIMIT TO THE REFORM OF EU INSTITUTIONS 5 II. THE FUNDAMENTAL ALTERNATIVES FOR EU INSTITUTIONAL SETTING 8 II.1 THE ANGLO-SAXON LIBERAL MODEL VS. THE SOCIAL EUROPEAN MODEL 8 II.2 FEDERALISM VS. INTERGUVERNMENTALISM 9 III. COMMUNITY GOVERNANCE METHODS 11 III. 1 COMMUNITY METHOD 11 III. 2 OPEN METHOD OF COORDINATION (OMC) 16 III. 3 INTERGOVERNMENTAL METHOD OR ENHANCED COOPERATION 19 IV. COMPETION POLICY 23 V. TAXATION POLICY 29 V.1 THE CONCRETE EXAMINATION OF THE MAIN INITIATIVES « ON THE TABLE » IN THE TAXATION AREA 30 VI. COMMON COMMERCIAL POLICY 33 VII. THE INSTITUTIONAL REFORM AT THE LEVEL OF THE MONETARY UNION 39 VII.1 THE NEW EXCHANGE RATE MECHANISM (ERM II) 39 THE INSTITUTIONAL DIMENSION 39 POSSIBLE SCENARIOS REGARDING THE FUNCTIONING OF ERM II 40 VII.2 ROMANIA AND THE EURO CURRENCY 43 THE PERSPECTIVES OF ADHESION TO THE EUROSYSTEM 43 CAN ROMANIA BE PART OF THE OPTIMUM CURRENCY AREA? 44 VII.3 THE REFORM OF THE DECISIONAL MECHANISM AS PART OF THE EUROPEAN CENTRAL BANK 45 THE PROPOSAL TO REFORM THE VOTE SYSTEM IN THE BOARD OF DIRECTORS DIRECTOR 45 CONSEQUENCES OF ADOPTING THE NEW SYSTEM 46 VIII. THE INSTITUTIONAL REFORM AT THE LEVEL OF THE EU BUDGET 48 VIII.1 EUROPEAN BUDGET AND THE PRIORITIES OF THE UNION 48 THE NECESSITY OF A RADICAL REFORM 48 ADAPTING THE BUDGET TO THE NECESSITIES OF THE UNION 49 VIII.2 POSSIBLE SCENARIOS OF THE REFORM 50 EUROPEAN OBJECTIVES AND NATIONAL STAKES 50 European Institute of Romania – Pre-accession impact studies III ________________________________________________________________________ ROMANIA AND EUROPEAN FUNDS 51 IX. CONCLUSIONS 53 IX.1 CONCLUSIONS RELEVANT REASONS FOR THE DEVELOPMENT OF EU INSTITUTIONS 53 IX.2.1 THE SOCIAL-ECONOMIC MODEL OF THE EU 53 IX.2.2 FEDERALISM-INTERGOVERNMENTALISM ALTERNATIVES 53 IX.3 THE PROSPECTS FOR GOVERNANCE METHODS AND THE IMPLICATIONS FOR ROMANIA 54 IX.4 COMPETITION POLICY 56 IX.5 TAXATION POLICY 57 IX.6 COMMON COMMERCIAL POLICY 58 IX.7 THE INSTITUTIONAL REFORM AT THE LEVEL OF THE MONETARY UNION 60 IX.8 THE INSTITUTIONAL REFORM AT THE LEVEL OF THE EU BUDGET 61 REFERENCES 62 ANNEXES 67 European Institute of Romania – Pre-accession impact studies III ________________________________________________________________________ I. THE ARGUMENTS FOR THE DEVELOPING OF EU INSTITUTIONS I.1 The size The belief that a European Union with 25 or more member states cannot function based on the existing rules was most likely the reason behind the Constitutional Treaty and its institutional innovations1. Fischer (2000) underlined the same idea and concluded with the need for political integration of a UE with 27 or 30 member states. However, there are enough reasons to infer that EU could function based on the existing rules, although this conclusion cannot hold true when the union might face problems as, for instance, Iraq war. It is noteworthy that while size must be accepted as a solid pro enlargement economic argument (the logic of economies of scale), it is itself an obstacle that derives from the very EU enlargement. The enlargement is a political objective and Fisher (2000) defends this idea in two ways. First, the political reality after 1989 constituted itself as a unique opportunity that needed to be seized. The events form the former Yugoslavia proved that within a divided Europe (a Western integrated one and an Eastern one based on the old system of balance), in the medium term, the traditional lines of conflict could be shifted from Eastern Europe to EU again. Second, Germany’s interests would be better served within EU and as such the historical German-French conflict would be dissipated. Otherwise, temptations (taking into account Germany’s size and Central Europe’s situation) are again possible and large scale European conflicts could again occur. I.2 The democratic deficit Since 1990 opinion polls have showed a steady decline in voters’ satisfaction: the central institutions of EU are considered to be distant, unaccountable, inefficient and interfering. The closing of the democratic deficit has been one of the major objectives in drawing the Constitution, along with the objective of improving EU operation2. The rejection of the Constitution, even it was the case of only two member states, proves that this objective has not been reached. Ironically, this failure had a positive effect: the rejection of the Constitution by two founding countries is a powerful argument for the idea that it the EU citizens that control the integration process. The democratic deficit or the legitimacy deficit should not be a surprise for the academia at least. Ernst Haas, the creator of neo-functionalism – one of the most relevant and earliest integration theories - thought of EU as an essentially elite-driven process, similar to other nation-building projects. This idea is consistent with the fact that identification and support for EU and its institutions are higher among political and social European elites. EU impressive growth and its becoming of a grand reality while the major integration decisions were taken in a discrete way, without the direct consent of European citizens, are consistent with French and Dutch voters’ reasons for voting during the constitutional referenda of their countries. Many of those who voted for „No” were mainly not concerned 1 For instance, a Brussels-based presidency and the increase of threshold for groups of countries to form blocking minorities 2 The present EU organization is not consistent with two criteria of a democratic organization. First, a major component of the central EU authority has a significant legislative power, although it consists of national executive powers; as such it goes against the principle of balance of powers even when it comes to the national states. Second, the EU lacks a fundamental law which stems from individuals’ direct consent, as it is the case of a constitution. The “treaties” cannot be looked upon as a constitution because a fundamental condition is the existence of a European public, which is not the case (Feld and Kirchgassner 2004). European Institute of Romania – Pre-accession impact studies III ________________________________________________________________________ with Constitution’s contents or its integration objectives; they were rather dominated by current economic and political issues. The French were concerned with the high unemployment (over 10% at the time of their referendum). They perceived the EU enlargement as causing troublesome inflows of cheap labor and outflows of investment capital. The Dutch were mainly discontent because of their country being the highest contributor (per capita) to the EU budget. I.3 Cultural values – a limit to the reform of EU institutions Although integration challenges state identity, the „No” and „Nee” votes in France and, respectively, Holland prove that the national state is central to the lives of European citizens in a way EU is not. The European citizens proved that they define their identities in relation to their home countries and that democracy and accountability