EU economic governance: More exploitation for the weaker countries

Spanish minister of Finance Luis de Guindos (on the left) and Olli Rehn, Vice-President of the European Commission responsible for economic and monetary affairs, meeting at the Ecofin Council of 15/10/2013. (The Council of the European Union, Photographic Library).

Last Tuesday 15 October was the last day the 28 EU member states, and more so the 18 Eurozone countries, had to submit to the Commission for approval their draft budgets for 2014. It is the first time that the European Union member states and more particularly the euro area countries, before presenting their state budgets for next year to national Parliaments, they need first to secure the green light from the European Commission. The EU’s executive arm is to make sure that those annual fiscal exercises are within the limits set for deficits (3% of the GNP).

The Commission has the right to ask for modifications, if the deficit and debt limits are not respected. Only then the budgets can be legally endorsed by the national legislatures. This is the most important concession of national sovereignty by the EU member states to Brussels authorities. In reality after the Commission’s approval of next years’ fiscal exercise, the national parliamentary procedure for the endorsement of the budget becomes just a bureaucratic and technical process. Of course national Parliaments can change the magnitude of the individual items of the budget, but they must respect the overall deficit limit of 3% of GDP.

Economic governance

This is the new EU economic governance procedure, introduced in the European Union with two sets of regulations, the well know ‘six pack’ and ‘two pack’. Deficit and debt limits are the same for all 28 EU member states. For the euro area countries however there are additional special provisions, enforcing closer monitoring and stricter obligations under the excessive deficit procedure.

However a lot of things in Brussels, including legality, are relative matters depending on what the Commission ‘thinks’ it is legal. The EU’s executive arm usually keeps for itself the last word. This is the famous or rather infamous discretionary power of the Commission. Of course this is not made for ‘personal use’ by Commissioners, but rather for those who have sent them there, the member states. Given that it is also a traditional in Brussels that some countries like Germany, France and Britain are more equal than others, they can make more use of Commission’s discretionary power. The hierarchy of power goes even deeper to medium size member states and the states affiliated to the ‘big ones’.

Naturally the big innovation of EU’s economic governance procedures couldn’t be an exception to the above rule. To this effect the Commission ‘discovered’ that some public ‘investment related’ spending could be forgiven, and not count in the allowed 3% of GNP deficit. Olli Rehn, Vice-President of the European Commission responsible for economic and monetary affairs made this exception official and even gave it the pompous name, of ‘investment close’. He described it very nicely as follows, “productive investment, especially the issue of how public investments which support sustainable growth can be accommodated within our fiscal rules”. Accommodate’, is the usual word used by the Commission, when the ‘bosses’ demand special treatment.

Not all deficits are deficits!

Rehn had more to say on this issue last Tuesday night in Luxembourg, after the meeting of the Ecofin council. In that Press conference he clarified: “In other words, the Commission will take into account public investment plans for productive investments related to co-financing of European projects, under these specific conditions and within the clear limits set by the Stability and Growth Pact, when we assess of Member States’ draft budget plans for 2014”.

As it happens with exceptions, more clarifications are usually needed. To this effect Rehn went on explaining which of those investments/projects will not count in the deficit, stating that “this needs to be focused on co-financed projects with European Structural and Cohesion policy, Communication and the Connecting Europe Facility. These must have a positive, direct and verifiable long-term budgetary effect. These are the keys conditions of the investment clause”. Then he added, ”Today, I clarified to those Ministers who will use this investment clause, so that they are working on the basis of precise and relevant information and they know that they can, in case they fulfil the conditions and they want to move forward on this, they can then apply this investment clause in their budget for 2014”.

This is a very serious matter to be that complicated though. If Rehn can decide almost freely what doesn’t count in the deficit, he can single-handed rewrite all the ‘two pack’ and the ‘six pack’ regulations. Next time might change his mind and add some new exceptions, accommodating more demands by core countries like Germany and France. In this way the phantom of democratic deficit of the European Union rises again and becomes the source of more arbitrary decisions accommodating the powerful.

It is even more disappointing and dangerous that the Berlin and Paris political and economic circles of power are eager to fully exploit this lack of EU’s basic democratic institutions and profit ruthlessly from the non-existent institutional protection of the weak and small member states. This is not though another cause for lamentations for the poor and the weak but rather a fundamental fault in the entire EU edifice, which may cause a its total collapse.