BRIEF POLICY

WHAT IS POLITICAL UNION? Sebastian Dullien and José Ignacio Torreblanca

For much of the history of European integration, the final SUMMARY Much discussion about political union has goal of political union – the famous finalité politique – was been framed as a simple choice between two seen as a distant one. Even when attempts were made to options: federalism or intergovernmentalism. define it – for example, in the European Convention and In fact, the choice facing Europe is much more the Constitutional Treaty – they failed completely. But the complicated. European leaders must decide how far to go in creating a genuine economic euro crisis has led to a massive transfer of power to the EU federation involving debt mutualisation, how level and made political union a real possibility. Political much “policy space” to create at the European initiatives by European Council President Herman Van level, and whether to legitimise political Rompuy and German Foreign Minister Guido Westerwelle, union through national governments and together with the rulings of the German Constitutional Court parliaments or through developing existing EU institutions such as the European Parliament and European Commission President José Manuel Barroso’s or creating new EU institutions. However, recent call for a “federation of nation states” have kicked some combinations of answers to these three off a new debate about political union. But while many pro- questions might prove unsustainable and lead Europeans now agree that political union is necessary to save to new crises in the future. the euro, they often have in mind very different things. In particular, a very ambitious economic federation combined with a rules-based In particular, European leaders must make three choices approach to policymaking and indirect about what type of political union they want. The first choice legitimacy, as proposed by some in Germany, is between a limited economic federation aimed at stabilising will likely be unsustainable. Equally, it would be the euro and a full economic federation taking on traditional risky to introduce more political competition in a limited economic federation working on very nation-state tasks such as taxation, social welfare, and narrow rules, which might lead to political and redistribution. The second choice is between a rules-based social unrest and instability at the national level. federation with a very small margin for policy innovation Nor can the German model of constitutional and flexibility and one with ample discretionary powers and democracy simply be exported to the whole policy instruments. The third choice is between a political of the EU. The wrong approach to political union could lead to a failure to stabilise and system that relies on indirect legitimacy and is governed legitimise monetary union or a split at the core mostly through intergovernmental mechanisms and one of the eurozone. Thus an attempt to overcome that draws on direct legitimacy instruments and confers the crisis could push the EU off a political cliff. ample executive authority to supranational institutions such as the European Commission. 2 ECFR/70 December 2012 www.ecfr.eu WHAT IS POLITICAL UNION? A failure to adequately balance these three dimensions dimensions three these balance adequately to failure A Integration andlegitimacy European Central Bank (ECB), and the International International the and (ECB), Bank Central European arm corrective and preventive the both strengthened (2011) The shift does not stop there: access to support from the the from support to access there: stop not does shift The Parliament, obliged member states to change their national their change to states member obliged Parliament, Prime Minister José Luis Rodríguez Zapatero in 2011 and and 2011 in Zapatero Rodríguez Luis José Minister Prime and finally the “Treaty on Stability, Coordination and and Coordination Stability, on “Treaty the finally and national veto eventually and monitor to capacity ante Monetary Fund (IMF). These programmes cut to the bone the to cut programmes These (IMF). Fund Monetary “Six-Pack” the taxation; and pensions, markets, labour as Commission’s capacity to monitor national budgets; (2012), Union” budgets; Monetary and Economic the in Governance national monitor to capacity Commission’s Court of Justice (ECJ) should they fail to comply with the the with comply to fail they should (ECJ) Justice of Court create a three-tier Europe consisting of a highly integrated highly a of consisting Europe three-tier a create It unsustainable. be will legitimacy indirect or direct either and approach rules-based a only with federation economic could create havoc in Europe. In particular, a very ambitious could paradoxically create another existential crisis and and crisis existential another create paradoxically could degree of invisible or implicit governance. The letters sent sent letters The governance. implicit or invisible of degree implemented jointly programmes, conditionality economic Financial European the mechanisms, rescue eurozone’s in and, provisions debt-brake introduce to constitutions states; member in imbalances macroeconomic and deficits extent to which the ECB was acting as a shadow government of extremely sensitive national issues such as pensions, pensions, as such issues national sensitive extremely of fiscal monitor to powers Eurogroup and Commission of who do not want to join the core. While the EU can – and – can EU the While core. the join to want not do who nature which has not been approved by the European European the by approved been not has which nature new provisions. monetary union. There is a danger that, in creating political cannot it Europe, three-tier a such with live – to have may massive transfer of powers to the EU level: the “European “European the level: EU the to powers of transfer massive the first group but cannot, and a third tier comprising those top of this “visible” conditionality, there is also a great great a also is there conditionality, “visible” On this of provisions. top welfare and taxation, market, labour the intergovernmental of treaty a compact, fiscal so-called the European the strengthened further (2012) “Two-Pack” the commitments new established (2011) Pact” Plus “Euro the them to reform pension laws or labour markets, revealed the asking 2010, in Berlusconi Silvio Minister Prime Italian to is already clear that bold moves towards political union will union political towards moves bold that clear already is political core, a second tier including those who want to join push theEUoffapoliticalcliff. EU the crisis, existential an overcome to order in union legitimise and stabilise to failure a or core split a with live parallel, accept monitoring and sanctions by the European the by sanctions and monitoring accept parallel, tblt Mcaim EM, lo nld svr macro- severe include also (ESM), Mechanism European Stability the successor, its and (EFSF) Facility Stability ex- an Commission European the gave (2010) Semester” a witnessed have we crisis, euro the of onset the Since for community supervision of key national policies such such policies national key of supervision community for budgets before they are approved by national parliaments; national by approved are they before budgets by then ECB President Jean-Claude Trichet to Spanish Spanish to Trichet Jean-Claude President ECB then by the Commission, European the of troika so-called the by Angela Merkel unilaterally changed the terms of the Greek the of terms the changed unilaterally Merkel Angela 1  European taxes or establish redistribution or compensation or redistribution establish or taxes European euphemistically is what discussing is Council European Chancellor German and Sarkozy Nicolas President French EU level, the EU’s political and democratic structures have structures democratic and political EU’s the level, EU There is still more to come: the EU is currently discussing discussing currently is EU the come: to more still is There These difficult issues are the background to the proposals proposals the to background the are issues difficult These authority for making this economic union work properly. For and, framework economic and fiscal, financial, common a integration: economic its completing towards step giant a levy likely, most and, taxation national coordinate to able to able be will EU the that means which – union banking a and legitimacy. Ever since the dawn of the modern state, state, modern the of dawn the since Ever legitimacy. and representation political of bone the into deeply go these as and monetary union”. Whereas the Van Rompuy paper paper Rompuy Van the Whereas union”. monetary and Commission’s “blueprint for a deep and genuine economic genuine and deep a for “blueprint Commission’s equally importantly, institutions with the right amount of of amount right the with institutions importantly, equally out, bail recapitalise, intervene, sanction, supervise, directly called an “integrated financial framework” – euro-jargon for or close national banks and, at the same time, guarantee guarantee time, same the at and, banks national close or conflicts about taxation and representation have been been have representation central to and political life. The fear now is taxation that European leaders about conflicts emerged that the existing legitimacy of the EU would be too of Westerwelle, and in November with the European European the with November in and Westerwelle, of which would effectively mean an economic union in which in union economic an mean effectively would which remained almost completely unchanged. Worries have have Worries unchanged. completely almost remained recognises that “decisions on national budgets are at the the at are budgets national on “decisions that recognises democratically would that structures political the without mechanisms among different member states. Thirdly, there Thirdly, states. member different among mechanisms might end up sitting at the top of an economic federation federation economic an of top the at sitting up end might the EU would not only have a common currency but also also but currency common a have only not would EU the be would that union fiscal a become would EU the that “integrated an discussing also is Council European the Secondly, eurozone. the of all across savers of deposits the thin to support such a massive transfer of power, especially power, of transfer massive a such support to thin is discussion of an “integrated economic policy framework”, policy economic “integrated an of discussion is in Europeandbeyond. supporters of European integration, this would obviously obviously would this integration, European of supporters supervised. key macroeconomic policies (labour market, pensions, pensions, market, (labour policies macroeconomic key unemployment) would be jointly adopted, harmonised, and the Firstly, union. banking and fiscal, economic, for plans legitimise it. Should these proposals be adopted, the EU would have taken September by a group of foreign ministers at the initiative the at ministers foreign of group a by September for Spain and Italy. and Spain for budgetary framework”, which, if adopted, would mean mean would adopted, if which, framework”, budgetary bailout, sidelining European institutions and creating havoc be progress. But despite this massive shift of power to the the to power of shift massive this despite But progress. be brought forward in June 2012 by Van Rompuy’s paper, in in paper, Rompuy’s Van by 2012 June in forward brought “decree”, i.e.withoutgoing throughnationalparliaments. only suggestedthemeasures tobeadoptedbutalsorecommended theiradoptionby trichet_draghi_inglese_304a5f1e-ea59-11e0-ae06-4da866778017.shtml. TheECBnot September 2011,availableathttp://www.corriere.it/economia/11_settembre_29/ un’azione pressanteperristabilirelafiducia degliinvestitori”, The letterwasleakedandhasbeentranslated intoEnglish.See“TricheteDraghi: 1 The “Deauville agreement” between between agreement” “Deauville The Corriere dellaSera , 29 heart of Europe’s parliamentary democracies” and therefore exercised – the third dimension concerns the procedures and acknowledges that “moving towards more integrated roadmap that would eventually lead the EU to political union. fiscal and economic decision-making between countries will therefore require strong mechanisms for legitimate and accountable joint decision-making”, the Westerwelle Dimension 1: Limited versus full economic federalism group specifically calls for “a streamlined and efficient system for the separation of powers in Europe which has There are two visions of which powers to attribute to the full democratic legitimacy”.2 The Commission is even more EU level: a minimalist vision and a “great leap” vision. In specific: “The European Parliament that primarily needs to the minimalist vision, member states would only transfer ensure democratic accountability for any decisions taken at to the EU level those powers that are strictly necessary EU level.”3 to end the crisis and prevent a breakup of the currency union. This would include the existing powers to regulate the single market, the recently agreed transfer of fiscal Three dimensions of political union policy supervision as embodied in the fiscal compact, the “Six-Pack” and “Two-Pack”, and a limited banking union, It is of utmost importance that political union is sustainable including the common financial oversight by the ECB – that is, that it is set up in such a way that it does not lead (but not necessarily a common bank resolution regime inexorably to further economic and political crises in the or Eurobonds, as proposed by the European Commission, future. Without the transfer of key regulatory and fiscal since this would entail fiscal transfers from one member powers to the EU level, the crisis will continue and could state to the other). The assumption behind this approach is destroy the eurozone and potentially even the EU as we that the euro crisis was largely created by debtor countries, know it. Yet, as crucial as it is, the EU is in unchartered who therefore have to adopt and enforce the right reforms. waters in its attempts to complement the emerging The EU would need powers to police the adoption of these economic federation with an adequate political structure. reforms by member states and thus ensure that agreements Historically, democracy has existed only at the city and on debt, deficits, and macroeconomic imbalances are nation-state level, and there are no historical precedents of correctly enforced. Germans like to quote Lenin: “Trust is how to build a supranational democracy. Unlike proposals good, control is better.” on fiscal or banking union, which are based on a clear set of assumptions about how a monetary and economic union Others, however, argue that the euro crisis originated in the should work and which institutions, competencies, and incomplete and defective design of monetary union. They level of authority are needed to make it work, there is no argue that what is now needed is a “great leap” towards existing model for political union that would fit the EU’s economic federalism that would complete monetary union idiosyncrasies. by creating a full banking, fiscal, and economic union and set up new, strengthened, and centralised governance Were it a simple choice between federalism or structures. This approach is based on the theory of fiscal intergovernmentalism, things would be relatively easy. In federalism and follows the basic idea that all policy decisions fact, the choice facing Europe is much more complicated. that have a potential significant positive or negative external European leaders must decide how far to go in terms of effect on other countries should be transferred to the EU creating a genuine economic federation involving debt level. Those in favour of a “great leap” would thus think mutualisation, how much “policy space” to create at the from scratch which economic policy powers could be more European level, and whether to legitimise political union efficiently transferred to the central level and would allow through national governments and parliaments or through for endogenous mechanisms for the central government developing existing EU institutions such as the European to pull certain competencies to the centre should the need Parliament or creating new EU institutions. In other words, arise. there are three distinct dimensions of political union: limited versus full economic federalism; rules versus In the beginning, this would of course mean a real banking discretion; and direct versus indirect legitimation. While the union comprising a unified regulatory, oversight, and first two dimensions concern the substance of an economic resolution mechanism for all European banks and a stronger and political union – that is, which powers are attributed to macroeconomic stabilisation policy through the EU level, which level of government and to which degree they can be either through Eurobonds in whatever guise (for example, a “redemption fund”), project bonds, or “shock absorption” funds levied through contributions from member states. Later on, this might entail moves towards more ambitious

2 “Foreign Ministers Group on the Future of Europe: Chairman’s Statement for an proposals such as European unemployment insurance, Interim Report”, 15 June 2012, available at http://www.auswaertiges-amt.de/EN/ poverty eradication programmes, common labour market Europa/Aktuell/120620_Zwischenbericht_Zukunftsgruppe.html?nn=479786; “Towards a genuine economic and monetary union”, Report by President of the regulations, or massive infrastructure investment funds. European Council Herman Van Rompuy, Brussels, 26 June 2012, available at http:// ec.europa.eu/economy_finance/focuson/crisis/documents/131201_en.pdf. This would only be viable if the EU were also given the power 3 European Commission, “A blueprint for a deep and genuine economic and monetary to levy some taxes, for example a European corporate tax or union:Launching a European Debate”, Brussels, 30 November 2012, available at http://ec.europa.eu/commission_2010-2014/president/news/archives/2012/11/pdf/ its own VAT surcharge. With a larger budget of 4–5 percent blueprint_en.pdf. 3 4 ECFR/70 December 2012 www.ecfr.eu WHAT IS POLITICAL UNION? – in practice, an economic federation with the resources resources the with federation economic an practice, in – A “great leap” might lead to an improvement in economic economic in improvement an to lead might leap” “great A 4  The Westerwelle group, on the other hand, is more more is hand, other the on group, Westerwelle The Both visions have dangers. The minimalist approach creates Bundesbank President Jens Weidmann has not produced produced not has Weidmann Jens President Bundesbank accountability mechanisms. and political instability at the national level. Full economic Full level. national the at instability political and Of the recent contributions to the debate about political political about debate the to contributions recent the Of a vision as such but his remarks on this issue suggest that that suggest issue this on remarks his but such as vision a greater danger of economic and institutional instability. instability. institutional and economic of danger greater questions more pressing, both for reasons of legitimacy and debt issuance”. debt taxation mean could (which “credible capacity” a fiscal policies, community economic national of coordination once again become acute and create renewed economic economic renewed create and acute become again once common banking supervision but opposes European action European opposes but supervision banking common does not go further, and does not explicitly ask for common for ask explicitly not does and further, go not does only for a banking and fiscal union, but also for much closer of developing and adopting a legal framework for the the for framework legal a adopting and developing of economic policy priorities, for example in making Europe Europe making in example for priorities, policy economic of GDP, the EU would effectively become a “transfer union” “transfer a become effectively would EU the GDP, of need to match transfers of powers with adequate democratic not going much beyond making the Euro Plus Pact binding. Pact Plus Euro the making beyond much going not but banks, ailing of winding-up orderly and restructuring more powers to the EU level and therefore make political political make therefore and level EU the to powers more which would go a long way into turning the eurozone into a into eurozone the turning into way long a go would which minimalist. While it envisions a “European army” in in army” “European a envisions it While minimalist. to fulfil the German Constitutional Court’s demand on the on demand Court’s Constitutional German the fulfil to to stabilise the eurozone now might, as in the past, prove to prove past, the in as might, now eurozone the stabilise to to resolve legacy problems in the banking sector and is a is and sector banking the in problems legacy resolve to to additional economic powers, the Westerwelle group is is group Westerwelle the powers, economic additional to the long run, it is less federalist in economic terms. The The terms. economic in federalist less is it run, long the to make a real impact on the business cycle or in certain certain in or cycle business the on impact real a make to true economicfederation. if not all of the details are spelled out. Barroso called not not called Barroso out. spelled are details the of all not if staunch opponentofEurobonds. structural areas,andsometypeofjointfederaldebt. he is even more minimalist. He is, in principle, in favour of favour in principle, in is, He minimalist. more even is he performance: if it were designed well, a centrally defined defined centrally a well, designed were it if performance: upheaval and lead to a new recession, a break-up of the euro, have been further specified in the Commission’s blueprint, blueprint, Commission’s the in specified further been have union, Barroso’s remarks and the European Commission’s European the and remarks Barroso’s union, power) and “genuine mutualisation of debt redemption and paper produced by the group talks about the importance importance the about talks group the by produced paper Settling for what is perceived to be the absolute minimum minimum absolute the be to perceived is what for Settling less dependent on energy imports. Many of these elements these of Many imports. energy on dependent less federalism, on the other hand, would mean the transfer of transfer the mean would hand, other the on federalism, funds or even common oversight of banks. When it comes comes it When banks. of oversight common even or funds be too little. If this were the case, the economic crisis might crisis economic the case, the were this If little. too be blueprint go the furthest towards economic federalism, even rapid/press-release_SPEECH-12-596_en.htm. European Parliament, Strasbourg,12September2012,availableat http://europa.eu/ José ManuelDurãoBarroso,StateoftheUnion 2012Address,Plenarysessionofthe 4 Moreover, he demanded that the EU set set EU the that demanded he Moreover, – for example, if it turns out later that while powers have have powers while that later out turns it if example, for – At the other end of the spectrum are those who believe believe who those are spectrum the of end other the At As in the first dimension of political union, the Barroso Barroso the union, political of dimension first the in As Dimension 2:Rulesversusdiscretion (SGP) to curtail activist national fiscal policies. This is what is This policies. fiscal national activist curtail to (SGP) They argue that reality is too complex to be catered to to catered be to complex too is reality that argue They This rule-setting might be far-reaching and touch upon upon touch and far-reaching be might rule-setting This all members by guaranteeing stable and sound finances. To finances. sound and stable guaranteeing by members all how of question the is level European the to attributed economic full designed, badly were it if However, arena. able to set certain policy priorities and his call for a bigger a for call his and priorities policy certain set to able some penalise heavily which Keynesianism), to opposed as monetarism, or (ordoliberalism doctrines economic of set a Closely related to the question of which powers are are powers which of question the to related Closely governments. economic government. macroeconomic of vision Maastricht the of extension decide to power the as such sovereignty of elements central increase would turn in which market, help single and the growth deepen economic boost could policy economic enjoyed by national governments. Those in favour of rules- of favour in Those governments. national by enjoyed binding some sets centre the which in who Europe a those envision are spectrum the of end one At ones. existing deep political crisis as powers are taken away from national from away taken are powers as crisis political deep on a public budget. This approach can also be seen as an an as seen be also can approach This budget. public a on or parliaments, have to approve new policies or change change or policies new approve to have parliaments, or rules (as in the fiscal compact) that prevent national and and national prevent that compact) fiscal the in (as rules global the in leverage more much EU the give would which many Germans such as Merkel have in mind when they link must therefore have the discretionary power traditionally traditionally power discretionary the have therefore must much discretion political institutions, whether governments meet economic needs. Legitimacy will also be crucial to to crucial be also will Legitimacy needs. economic meet take discretionary decisions on economic policy issues. issues. policy economic on decisions to discretionary able is take that government a needs union political a that or “Wirtschaftsregierung”, of idea the to compact fiscal the policy, defence and external common truly a to on move to incentives strong offer also would It legitimacy. EU’s the those in favour of discretion, however, the rules embodied rules the however, discretion, of favour in those is at the other, with the proposals of the Westerwelle group Westerwelle the of proposals the with other, the at is debt the and compact, fiscal the Pact, Plus Euro the in stability and tried through the Stability and Growth Pact Pact Growth and Stability the through tried and stability policies. certain adopting from governments sub-national somewhere in between. Barroso wants EU institutions to be policymaking, which limited the ECB’s objective to price price to objective ECB’s the limited which policymaking, proposals are at one end of the spectrum while Weidmann while spectrum the of end one at are proposals from it prevents and playing anactiveroleineconomicgrowth. sector public the of role the limits that yoke a is result The others. of expense the at policies a and policies European of paralysis permanent a prevent federalism could worsen overall economic performance performance economic overall worsen could federalism based policymaking see rules as public goods that benefit benefit that goods public as rules see policymaking based government European real a that and rules simple by brakes are not neutral but ideologically biased: they reflect they biased: ideologically but neutral not are brakes to effectively employed be cannot they transferred, been budget is supposed to provide the means for it. However, Weidmann voted against it in the ECB board. The German his remarks on the coordination of national economic Parliament and Constitutional Court may also object to this policies through the “Six-Pack” still show that he does not move. Thus the OMT has triggered a debate about rules and want institutions that have as much discretion as US ones. discretion of profound political, democratic, and legitimacy The Westerwelle group proposes giving existing rules- implications. based coordination mechanisms such as the Euro Plus Pact more teeth. Weidmann always insists on existing rules and This is a debate about economic policy rather than underlines that the German constitution prohibits further federalism. The US federal system confers de facto transfer of powers to the European level. independent institutions such as the Federal Reserve, representative institutions such as Congress, and executive One example of this debate about rules versus discretion institutions such as the Presidency, wide and discretionary is the current debate between austerity and growth. What powers. Some of them have to be exercised in agreement, happens when the rules fail to promote growth, or even such as the Troubled Asset Relief Program (TARP), but make it harder, as is currently the case? Should the rules the Fed can approve three rounds of “quantitative easing” be changed? Or should alternative policies be discussed? at its discretion. The German federal model, in contrast, is With the current configuration of the debate, the answer formally more on the rules side, and seeks to limit discretion. to both questions is no: while the austerity targets are For obvious reasons, given the power of Germany, any move considered untouchable, no growth policies are approved to towards political integration in Europe is more likely to complement for the lack of growth. How this austerity trap is import German rather than US institutions, which means working at present provides the best warning for the future. that some EU institutions will be legally prevented from Does it make sense to further lock and constitutionalise this being responsive to citizens’ preferences. But although the very rigid system or should the discussions on economic strict rules-based approach is favoured in the economic union include a debate on “discretion”, i.e. when and how academic literature, it has not yet been proven in reality. In existing rules can be relaxed or alternative policies applied. fact, attempts to implement strict rules such as the Argentine currency board, the SGP, or the “no bailout” clause of the Imagine a scenario in which elections were held for the Maastricht Treaty have failed. The German constitution’s position of European Commission President in 2014, as own “debt brake” has only been in place since 2009 – much Barroso and the G11/G9 propose. If the Socialists won the too short a period to judge its long-term stability. election and the European Parliament named Martin Schulz as Commission President, how much discretion would he have? Would he be able to promote growth using the EU Dimension 3: Direct versus indirect legitimacy budget? Would he be able to propose a pan-European employment insurance programme, a new infrastructure or The various proposals for political union currently on the research and development policy, or a poverty eradication table have one thing in common: the belief that current policy? In reality, without the power to raise taxes and plans under discussion to complete monetary union with with a tiny budget at 1 percent of GDP, there would be a fiscal, banking, or economic union imply such a massive little he could do. In fact, at present, it is the ECB rather transfer of sovereignty from the national capitals to the than the Commission that has the power to approve European institutions that they make strengthening the stimulus packages and take growth- and jobs-oriented legitimacy of the EU upon European citizens unavoidable. measures. However, unlike the Federal Reserve, whose But this is the only point in agreement. In fact, there are mandate includes jobs and growth, the mandate of the ECB two opposing visions about how to do this: a “minimalist- prevents it from being responsive to demands for jobs and intergovernmentalist” one and a “maximalist-federalist” one. growth policies. Thus increasing the powers and raising the political profile of the European Commission and the The minimalist-intergovernmentalists believe that member European Parliament without also endowing them with states are the ultimate repositories of legitimacy and the instruments to agree policies that respond to citizens’ democracy, and that the transfer of sovereignty implied demands would aggravate rather than alleviate disaffection. by political union would require a parallel upgrading and The EU could be an economic federation without a real strengthening of the presence of member states in the EU government because the European Commission would still decision-making process. This translates into a preference be more of an implementing agency than a political actor. for mechanisms such as the fiscal compact or the ESM that fall outside the treaties, for unanimity (except to prevent Another example of tension between the rules-based debtors breaking the rules or failing to fulfil their austerity approach and the discretion-based approach, and its commitments), for European Council summitry, and for constitutional implications, is the debate about the ECB’s keeping the European Commission and the European Outright Monetary Transactions (OMT) programme. Many Parliament at arm’s length when it comes to setting the in Europe support the attempt by ECB President Mario direction and policies to move the EU forward. This does not Draghi to introduce flexibility and discretion to the system necessarily mean abolishing the community method, but in order to preserve it. However, the Bundesbank sees it does mean at least maintaining and perhaps enhancing it as a threat to the system and a breach of the rules, and or formalising the current division of labour, in which the 5 6 ECFR/70 December 2012 www.ecfr.eu WHAT IS POLITICAL UNION? “Euro Council” (where heads of state and chiefs of government 17 eurozone countries) and a periphery (made of “pre-ins” “pre-ins” of (made periphery a and countries) eurozone 17 Were this arrangement to be mismanaged, it could create create could it mismanaged, be to arrangement this Were Wolfgang Schäuble have proposed that a Commissioner act Commissioner a that proposed have Schäuble Wolfgang EU would take a giant step towards the creation of a true true a of creation the towards step giant a take would EU The advantage of the minimalist-intergovernmentalist minimalist-intergovernmentalist the of advantage The reducing by Commission the streamlining propose They The maximalist-federalists, on the other hand, want to to want hand, other the on maximalist-federalists, The Under the Van Rompuy proposals, which are based on the on based are which proposals, Rompuy Van the Under Parliament and the EuropeanCommission. Their proposals Parliament. In short, they aim to replicate at the EU level level EU the at replicate to aim they short, In Parliament. thus and Commissioners the pick freely to President and “opt-outs”), the EU would at least preserve a common a preserve least at would EU the “opt-outs”), and the of (made core a be would there though that is approach acts asthetruegovernmentofEU. Commission and European Parliament. The disadvantage is fiscal, of oversight of powers with tsar super-economic as Commission the allowing and Commissioners, junior and elections. European 2014 the in President Commission a de facto economic federation which would be governed governed be would which federation economic facto de a deal to left are ECJ the and Parliament, the Commission, could impose legislation on countries outside the eurozone. the outside countries on legislation impose could arrangements in vote could eurozone the outside countries eurozone. This Eurogroup would rely on the authority authority the on rely would Eurogroup This eurozone. European the especially institutions, European existing of of the other recent contributions to the debate, including including debate, the to contributions recent other the of on said, as and, gather) would countries eurozone 17 the of with the day-to-day policies, while the European Council Council European the while policies, day-to-day the with right, incumbent and challenger. If these measures came came measures these If challenger. and incumbent right, major tensions and lead to the definitive splitting into two of minimalist-intergovernmentalist vision, the three building building three the vision, minimalist-intergovernmentalist the EU:notatwo-speedEurope buttwoEuropes. that it would create a further legitimacy problem: MEPs from the maximalist-federalistvision. to closer are group, Westerwelle the and Barroso by those Many enjoys. Commissioner Competition current the that In institutions. EU regular of capacity implementation the – Parliament European the for powers new with together and left opposition, and government of system national the senior into them dividing by and members of number the institutional framework in the form of a common European in particular to raise new taxes, increase the size of the EU the of size the increase taxes, new raise to particular in to as so proposals its in bias partisan more a introduce legitimacy democratic and capacity policy the strengthen usually revolve around the election of the European European the of election the around revolve usually parallel to this, some such as German Finance Minister Minister Finance German as such some this, to parallel political union. European the in him/her supporting parties the please provided by a reduced version of the European Council, the Council, European the of version reduced a by provided for eurozone countries and MEPs from eurozone countries eurozone from MEPs and countries eurozone for from a reinforced Eurogroup, acting as the Cabinet of the the of Cabinet the as acting Eurogroup, reinforced a from banking, and macroeconomic policies equivalent to those those to equivalent policies macroeconomic and banking, the – programmes expenditure new approve or budget, blocks (fiscal, banking, and economic union) would lead to lead would union) economic and banking, (fiscal, blocks A related problem with this type of institutional set-up is that EU policies. In short, the minimalist-intergovernmentalist minimalist-intergovernmentalist the short, In policies. EU chamber new the treat to unlikely are and role European The minimalist-intergovernmentalist approach might also also might approach minimalist-intergovernmentalist The Thus, while the maximalist-federalist approach may be be may approach maximalist-federalist the while Thus, Parliament with new powers, but also recognise that the set recognisethealsothat powers,but Parliament new with as the only EU institution in which its members are directlymembersinstitutionareitswhichEU only in the as of ways consider to preferring it, oppose fiercely will and regularly they Thus parliaments. national on toll high a On the other hand, the maximalist-federalist approach approach maximalist-federalist the hand, other the On economic rules-based strict a with conjunction in adopted approach would not really solve existing problems. If it were contrast, In policymaking. and debate real for place a as and Spanish parliaments have never wanted to have an active who Those institutions. intergovernmental through acting Community and European Affairs Committees of Parliaments Germany’s parliament would likely take parliamentary parliamentary take likely would parliament Germany’s elected by citizens. diminishunderminepoweroritslegitimacy its capacity and desirable, European leaders should first clearly establish establish clearly first should leaders European desirable, area. euro the of performance economic decent the despite exacerbate existingtensionsandproblems. block, even and over, influence substantial exert to chamber new the use might and seriously very affairs EU of control of managing the euro and could therefore further erode erode further therefore could and euro the managing of national include also and (COSAC) Union European the of of measures adopted to overcome the euro crisis have exacted would require a lengthy, costly, and risky consultation consultation risky and costly, lengthy, a require would referendums. or parliaments national through whether states, member from backing solid and clear require would French The problematic. also is parliamentarians national will becrucial. more closely involving national parliaments which would not members of national parliaments, which would play a role in the EU’s legitimacy. The idea of a third chamber made of of made chamber third a of idea The legitimacy. EU’s the belli casus a move this considers Parliament European the of up made chamber third a up setting of idea the with toy the German vision of political union – it might actually actually might it – union political of vision German the in various countries rejected a European Constitution Constitution European a rejected countries various in relieslegitimacyittheon provided nationalby governments because indirect mostly be would legitimacydemocratic its some member states rejected it. The question of sequencing support this view are not willing to beef up the European European the up beef to willing not are view this support how ratification would proceed and what would happen if if happen would what and proceed would ratification how perpetuate the current opaque and unaccountable way way unaccountable and opaque current the perpetuate say, to Needless committees. affairs budgetary parliaments’ taxation. as such issues sovereignty-sensitive on legislation procedure which might well fail. In the last decade, citizens decade, last the In fail. well might which procedure again which adapted, are constitutions national unless short, in – powers discretionary few very with union Some constitutional courts are also likely to object to it it to object to likely also are courts constitutional Some Suchchambera could growoutthe ofcurrent Conference of A sustainable political union other hand, if such an economic federation based on a rules- based system were combined with direct legitimation – for In each of the three dimensions of political union, European example, through the election of the European Commission leaders face difficult choices. In each case, there are two President – citizens might revolt when they discovered extreme positions: in the first dimension, limited and full that the EU government they elected had no real powers to economic federalism; in the second dimension, an approach introduce new policies or change the rules. to policymaking based on the enforcement of rules and an approach based on the creation of space for discretionary In other words, thinking about the three dimensions of policymaking at the EU level; and, in the third dimension, political union shows that the stereotypical “German vision” indirect legitimacy through member-state governments – as represented, for example, by Bundesbank President and parliaments and direct legitimacy through a reform of Jens Weidmann – will not work. Because it is a rules-based the EU institutions. The three dimensions are illustrated in system with very little policy space and room for innovative Figure 1. policymaking, it will be inefficient and unable to adapt to a changing environment. At the same time, the idea of simply exporting the German model of constitutional democracy Figure 1 to the whole of the EU is so demanding (and potentially Three dimensions of political union incompatible with other member states’ understanding of “democracy”) that it will be all but impossible for the EU to accept it. In other words, the German vision might Dimension 1 Dimension 2 Dimension 3 push the EU off a political cliff. One must wonder whether all members of the German elite who have this version of Model 1 Limited Rules-based Indirectly economic legitimised “political union” in mind are really sincere or whether their federalism demands are just a way of derailing European integration.

Model 2 Full economic Discretionary Directly federalism legitimised

A model based on limited economic federalism, a rules- based approach to policymaking, and indirect legitimisation through member-state governments and parliaments (Model 1) would represent the point of minimum departure from the existing status quo. The most ambitious approach, on the other hand, would be to create a full-fledged economic federation, ample powers for discretionary policymaking, and direct legitimisation through reformed EU institutions (Model 2). This would be an economic federation that would also be a full-fledged political union, with something very much like a European government and a parliamentary democracy with two chambers, the European Parliament and the Council of Ministers. Of course, there could also be combinations of other choices in each of the three dimensions. However, it is not a matter of picking and choosing freely from the three different options: some combinations are unsustainable and could lead to new political and economic crises.

In particular, an economic federation based on a rules-based system and relying on mostly indirect legitimation strategies would likely be unsustainable. It would likely come under pressure from two sides. First, the rules might prove as inadequate for dealing with economic needs in the future and lead to a new economic crisis. Second, this approach would likely suffer from a lack of direct legitimacy, causing political upheaval at the member-state level. Thus it might lead to a new crisis that would force a further move to greater discretion at the EU level and full direct legitimation. On the 7 About the authors Acknowledgements

José Ignacio Torreblanca is a Senior Policy Fellow and We would like to thank our editor, Hans Kundnani, who the Head of the Madrid Office at the European Council on was able to find, save and give new life to the (presumably) Foreign Relations. A professor of political science at UNED good ideas buried in the original text. Thanks too to all our University in Madrid, a former Fulbright Scholar and Fellow colleagues at ECFR, and especially to Jonas Parello-Plesner of the Juan March Institute for Advanced Studies in Madrid, and Ulrike Guérot, for their comments and suggestions to an he has published extensively on the politics of EU integration, earlier version of the text. José Ignacio Torreblanca would including institutional reforms, eastern enlargement and also like to thank José M. de Areilza, Secretary General of

WHAT IS POLITICALWHAT UNION? EU foreign policy, as well as on Spanish foreign policy. Since Aspen Institute in Madrid and Professor at ESADE Business 2008, he has also been a regular columnist for El País. His School, with whom he has discussed these ideas time and publications for ECFR include Spain after the elections: the again over the last year. “Germany of the South”? (with Mark Leonard, November 2011).

Sebastian Dullien is a Senior Policy Fellow at the European Council on Foreign Relations and a professor of International Economics at HTW Berlin, the University of Applied Sciences. From 2000 to 2007 he worked as a journalist for the Financial Times Deutschland, first as a leader writer and then on the economics desk. He writes a monthly column in the German magazine Capital and is a regular contributor to Spiegel Online. His publications for ECFR include Why the euro crisis threatens the European Single Market (October 2012). www.ecfr.eu December 2012 ECFR/70 8 Among members of the European Council on Foreign Relations are John Bruton (Ireland) Hanzade Dog˘an Boyner Hans Hækkerup (Denmark) former prime ministers, presidents, Former European Commission (Turkey) Former Chairman, Defence European commissioners, current Ambassador to the USA; former Prime Chair, Dog˘an Gazetecilik and Dog˘an Commission; former Defence Minister and former parliamentarians and Minister (Taoiseach) On-line ministers, public intellectuals, Heidi Hautala (Finland) Ian Buruma (The Netherlands) Andrew Duff (United Kingdom) Minister for International Development business leaders, activists and Writer and academic cultural figures from the EU member Member of the European Parliament Sasha Havlicek states and candidate countries. Erhard Busek (Austria) Mikuláš Dzurinda (Slovakia) (United Kingdom) Chairman of the Institute for the Former Foreign Minister Executive Director, Institute for Strategic Danube and Central Europe Dialogue (ISD) Asger Aamund (Denmark) Hans Eichel (Germany) President and CEO, A. J. Aamund A/S Jerzy Buzek (Poland) Former Finance Minister Connie Hedegaard (Denmark) and Chairman of Bavarian Nordic A/S Member of the European Parliament; Commissioner for Climate Action former President of the European Rolf Ekeus (Sweden) Urban Ahlin (Sweden) Parliament; former Prime Minister Former Executive Chairman, United Steven Heinz (Austria) Deputy Chairman of the Foreign Nations Special Commission on Iraq; Co-Founder & Co-Chairman, Affairs Committee and foreign Gunilla Carlsson (Sweden) former OSCE High Commissioner on Lansdowne Partners Ltd policy spokesperson for the Social Minister for International Development National Minorities; former Chairman Democratic Party Cooperation Stockholm International Peace Annette Heuser (Germany) Research Institute, SIPRI Executive Director, Bertelsmann Martti Ahtisaari (Finland) Maria Livanos Cattaui Foundation Washington DC Chairman of the Board, Crisis (Switzerland) Uffe Ellemann-Jensen Management Initiative; former Diego Hidalgo (Spain) President Former Secretary General of the (Denmark) Co-founder of Spanish newspaper El International Chamber of Commerce Chairman, Baltic Development Forum; País; Founder and Honorary President, Giuliano Amato (Italy) former Foreign Minister FRIDE Former Prime Minister; Chairman, Ipek Cem Taha (Turkey) Scuola Superiore Sant’Anna; Director of Melak Investments/ Steven Everts (The Netherlands) Jaap de Hoop Scheffer Chairman, Istituto della Enciclopedia Journalist Adviser to the Vice President of the Italiana Treccani; Chairman, Centro European Commission and EU High (The Netherlands) Studi Americani Carmen Chacón (Spain) Representative for Foreign and Security Former NATO Secretary General Former Minister of Defence Policy Gustavo de Aristegui (Spain) Danuta Hübner (Poland) Diplomat; former Member of Charles Clarke Tanja Fajon (Slovenia) Member of the European Parliament; Parliament (United Kingdom) Member of the European Parliament former European Commissioner Visiting Professor of Politics, University Viveca Ax:son Johnson Gianfranco Fini (Italy) Anna Ibrisagic (Sweden) of East Anglia; former Home Secretary President, Chamber of Deputies; 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September 2012 (ECFR/63) José Ignacio Torreblanca and Mark A Power Audit of EU-Russia The EU and Human Rights at the Leonard, November 2011 (ECFR/42) Why the Euro Crisis Threatens the Relations UN: 2010 Review European Single Market Mark Leonard and Nicu Popescu, Richard Gowan and Franziska Four Scenarios for the Reinvention Sebastian Dullien, October 2012 November 2007 (ECFR/02) Brantner, September 2010 (ECFR/24) of Europe (ECFR/64) Mark Leonard, November 2011 Poland’s second return to Europe? The Spectre of a Multipolar Europe (ECFR/43) The EU and Ukraine after the 2012 Paweł Swieboda, December 2007 Ivan Krastev & Mark Leonard with Elections (ECFR/03) Dimitar Bechev, Jana Kobzova Dealing with a Post-Bric Russia Andrew Wilson, November 2012 & Andrew Wilson, October 2010 Ben Judah, Jana Kobzova and Nicu (ECFR/65) Afghanistan: Europe’s (ECFR/25) Popescu, November 2011 (ECFR/44) forgotten war China 3.0 Daniel Korski, January 2008 (ECFR/04) Beyond Maastricht: a New Deal for Rescuing the euro: what is China’s Edited by Mark Leonard, November the Eurozone price? 2012 (ECFR/66) Meeting Medvedev: The Politics of Thomas Klau and François François Godement, November 2011 the Putin Succession Godement, December 2010 (ECFR/26) (ECFR/45) Time to grow up: what Obama’s Andrew Wilson, February 2008 re-election means for Europe (ECFR/05) The EU and Belarus after the A “Reset” with Algeria: the Russia Dimitar Bechev, Anthony Dworkin, Election to the EU’s South François Godement, Richard Gowan, Re-energising Europe’s Security and Balázs Jarábik, Jana Kobzova Hakim Darbouche and Susi Hans Kundnani, Mark Leonard, Defence Policy and Andrew Wilson, January 2011 Dennison, December 2011 (ECFR/46) Daniel Levy, Kadri Liik and Nick Nick Witney, July 2008 (ECFR/06) (ECFR/27) Witney, November 2012 (ECFR/67) Ukraine after the Tymoshenko Can the EU win the Peace in After the Revolution: Europe and verdict Jordan Tremors: Elusive consensus, Georgia? the Transition in Tunisia Andrew Wilson, December 2011 deepening discontent Nicu Popescu, Mark Leonard and Susi Dennison, Anthony Dworkin, (ECFR/47) Julien Barnes-Dacey, November 2012 Andrew Wilson, August 2008 (ECFR/07) Nicu Popescu and Nick Witney, March (ECFR/68) 2011 (ECFR/28) European Foreign Policy Scorecard A Global Force for Human Rights? 2012 The EU, Algeria and the Northern An Audit of European Power at European Foreign Policy Scorecard February 2012 (ECFR/48) Mali Question the UN 2010 Susi Dennison, December 2012 Richard Gowan and Franziska March 2011 (ECFR/29) The Long Shadow of (ECFR/69) Brantner, September 2008 (ECFR/08) Ordoliberalism: Germany’s The New German Question: How Approach to the Euro Crisis Beyond Dependence: How to deal Europe can get the Germany it Sebastian Dullien and Ulrike Guérot, with Russian Gas needs February 2012 (ECFR/49) Pierre Noel, November 2008 (ECFR/09) Ulrike Guérot and Mark Leonard, April 2011 (ECFR/30) The End of the Putin Consensus Re-wiring the US-EU relationship Ben Judah and Andrew Wilson, Daniel Korski, Ulrike Guerot and Mark Turning Presence into Power: March 2012 (ECFR/50) Leonard, December 2008 (ECFR/10) Lessons from the Eastern Neighbourhood Syria: Towards a Political Solution Shaping Europe’s Afghan Surge Nicu Popescu and Andrew Wilson, Julien Barnes-Dacey, March 2012 Daniel Korski, March 2009 (ECFR/11) May 2011 (ECFR/31) (ECFR/51)

A Power Audit of EU-China Relations Egypt’s Hybrid Revolution: a Bolder How the EU Can Support Reform John Fox and Francois Godement, EU Approach in Burma April 2009 (ECFR/12) Anthony Dworkin, Daniel Korski and Jonas Parello-Plesner, March 2012 Nick Witney, May 2011 (ECFR/32) (ECFR/52) Beyond the “War on Terror”: Towards a New Transatlantic A Chance to Reform: How the EU China at the crossroads Framework for Counterterrorism can support Democratic Evolution François Godement, April 2012 Anthony Dworkin, May 2009 (ECFR/13) in Morocco (ECFR/53) Susi Dennison, Nicu Popescu and The Limits of Enlargement-lite: José Ignacio Torreblanca, Europe and Jordan: Reform before European and Russian Power in the May 2011 (ECFR/33) it’s too late Troubled Neighbourhood Julien Barnes-Dacey, April 2012 Nicu Popescu and Andrew Wilson, China’s Janus-faced Response to (ECFR/54) June 2009 (ECFR/14) the Arab Revolutions Jonas Parello-Plesner and Raffaello China and Germany: Why the The EU and human rights at the UN: Pantucci, June 2011 (ECFR/34) Emerging Special Relationship 2009 annual review Matters for Europe Richard Gowan and Franziska What does Turkey think? Hans Kundnani and Jonas Parello- Brantner, September 2009 (ECFR/15) Edited by Dimitar Bechev, June 2011 Plesner, May 2012 (ECFR/55) (ECFR/35) What does Russia think? After Merkozy: How France and edited by Ivan Krastev, Mark Leonard What does Germany think about Germany Can Make Europe Work and Andrew Wilson, September 2009 Europe? Ulrike Guérot and Thomas Klau, (ECFR/16) Edited by Ulrike Guérot and May 2012 (ECFR/56) Jacqueline Hénard, June 2011 Supporting Moldova’s Democratic (ECFR/36) The EU and Azerbaijan: Beyond Oil Transition Jana Kobzova and Leila Alieva, Nicu Popescu, October 2009 (ECFR/17) The Scramble for Europe May 2012 (ECFR/57) François Godement and Jonas Can the EU rebuild failing states? A Parello-Plesner with Alice Richard, A Europe of Incentives: How to review of Europe’s Civilian Capacities July 2011 (ECFR/37) Regain the Trust of Citizens and Daniel Korski and Richard Gowan, Markets October 2009 (ECFR/18) Palestinian Statehood at the UN: Mark Leonard and Jan Zielonka, Why Europeans Should Vote “Yes” June 2012 (ECFR/58) Towards a Post-American Europe: Daniel Levy and Nick Witney, A Power Audit of EU-US Relations September 2011 (ECFR/38) The Case for Co-operation in Jeremy Shapiro and Nick Witney, Crisis Management October 2009 (ECFR/19) The EU and Human Rights at the Richard Gowan, June 2012 (ECFR/59) UN: 2011 Review Dealing with Yanukovych’s Ukraine Richard Gowan and Franziska The Periphery of the Periphery: The Andrew Wilson, March 2010 Brantner, September 2011 (ECFR/39) Western Balkans and the Euro Crisis (ECFR/20) Dimitar Bechev, August 2012 (ECFR/60) How to Stop the Demilitarisation Beyond Wait-and-See: The Way of Europe Lebanon: Containing Spillover Forward for EU Balkan Policy Nick Witney, November 2011 from Syria Heather Grabbe, Gerald Knaus and (ECFR/40) Julien Barnes-Dacey, September 2012 Daniel Korski, May 2010 (ECFR/21) (ECFR/61)

11 ABOUT ECFR

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