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Could a ‘Eurozone Community’ ever replace the EU?

The eurozone cannot flourish without significant reform but politicians will find it very hard to persuade voters that a lot of powers now held by member states should be transferred to new or existing Brussels institutions – writes Charles Grant

A dozen French European Union experts have written a manifesto proposing the creation of a new ‘Community’ for the eurozone. The self-styled Eiffel Group makes an intelligent case for a federal, political union that would exist alongside the EU. The chances of such a community emerging are, in my view, rather small. But the manifesto deserves to be read, because the authors are serious people with first-hand knowledge of how the EU works.

They include Yves Bertoncini, director of the Notre Europe – Jacques Delors Institute; Laurence Boone, an economist at Bank of America Merrill Lynch; Sylvie Goulard, a liberal MEP; Denis Simonneau, a member of the board of GDF Suez; and Shahin Vallée, economic adviser to European Council President Herman Van Rompuy. If they get their way, the EU itself would become a second-class club with little appeal to members such as Denmark, Sweden or the United Kingdom.

The Eiffel Group’s analysis of the euro crisis is similar to that of the Centre for European Reform. The authors argue, for instance, that fiscal policy has been too restrictive. And they are unhappy with the way Germany exerts leadership in the eurozone. “The current situation, where German federal bodies – Bundestag or the Karlsruhe court – hold the fate of the euro in their hands is not good for Germany, placed in a position of hegemony, nor for Germany’s partners, reduced to complying.”

But the institutional thinking of the Eiffel group makes the CER uncomfortable. Its chief proposal is for the euro countries and others committed to a “common destiny” to negotiate a treaty for a euro Community. This community would be about much more than the euro, covering education, training and innovation. It would invest in digital, transport and energy networks, as well as research. The group proposes new instruments to absorb economic shocks and support the most vulnerable people. It wants EU-level unemployment benefits and “partial harmonisation” of labour markets.

The authors call for “putting an end to the ill-defined concept of subsidiarity [the idea that decision-making should rest at the lowest practicable level], a pretext for the renationalisation of policies”. And they would aim for a common external representation, although the authors say very little about what kind of foreign policy the community should have.

A eurozone parliament would elect an executive to run the community. That parliament’s members would double-up as MEPs. A levy on companies or a carbon tax would pay for the community’s budget. It would borrow collectively to finance future projects, although not to cover past debts.

The Eiffel Group is hostile to a greater role for national parliaments in the EU or the new community. Nor does it want joint meetings of national parliamentarians and MEPs, as envisaged in the 2012 ‘fiscal compact’ treaty: “The principle must be imposed that a European decision requires European control and a national decision national control.”

The existing European Court of Justice would police the community’s rules and enforce sanctions on those who breach them. However, nothing is said about how the European Commission – or, indeed, the entire EU – would relate to the new community. The authors appear to think that the relationship between the euro-ins and -outs is not a problem, because they expect most of the member-states outside the euro to join it within a few years.

The manifesto’s discussion of the single market is cursory. It suggests that the single market take in countries that cannot easily join the EU, such as Albania, Moldova, Turkey and Ukraine. It assumes that Britain would be much happier if left in an outer tier consisting of not much more than the market, alongside such countries. Though they never state it openly, the authors imply that a big advantage of the new community would be to ensure that the British couldn’t block further European integration.

This French manifesto was inspired by a similar German enterprise: last year the Glienicker Group of German experts drew up its own federal manifesto. The Eiffel group believes that France and Germany together have a special responsibility to manage European integration – Italy, Spain and Poland are scarcely mentioned in the French manifesto. Nevertheless many Germans will have problems with the Eiffel proposals.

Germans tend to like subsidiarity, and may baulk at the Eiffel Group’s derogatory language on this principle. Similarly, they are big fans of the single market even if they are reluctant to extend it further into services, so may wonder why these French authors seem so uninterested in it. The suggestion that the poorer Balkan countries, Turkey and Ukraine should join the single market implies that it is a slap-dash creation, rather than a construction that needs to be policed vigorously with strong rules and institutions.

The Eiffel Group calls for the community to build energy, transport and digital networks, but surely many of the most important infrastructure projects would achieve more if extended across the entire EU rather than merely the eurozone? For example, carbon capture and storage cannot take off seriously in the EU without a pan-European network of pipes to take CO2 from the places it is emitted to suitable underground burial sites – such as those which lie under the North Sea.

Some Germans will agree with the Eiffel Group that the eurozone needs to develop into a strong Community, but they will be concerned that the authors more-or-less ignore the relationship between the 28 and the 18. How could one ensure a smooth fit between the EU and the community? What happens to the commission? And what if the community executive takes actions that harm the single market?

The manifesto implies that such difficulties will be resolved by nearly all the EU countries joining the euro. But that may be wishful thinking. Lithuania apart, none of the euro-outs has taken even the first steps towards joining the euro, such as entering the Exchange Rate Mechanism. In Poland both the constitution and public opinion seem likely to prevent the adoption of the euro until well into the next decade. Some non-euro countries – unlike the UK – may be willing to accept the disciplines of the euro, because they plan to join in the long run. But they will still want to ensure that the single market remains intact and that economically illiberal forces in the eurozone do not smother it.

French authors have a particular credibility problem in proposing the kinds of idea contained in this manifesto. This is because a number of senior people in France – though not the manifesto’s authors – lament the enlargement of the EU into Central and Eastern Europe, regret the waning of French influence in the wider EU, and hope to build a new, smaller club around the euro, in which France can exert significant influence. Not long ago, I heard a senior French official say that the EU was no longer useful for France, because there were too many Central Europeans in it, and because the French could no longer steer the Union.

Those outside France may imagine, however unfairly, that the Eiffel group is serving a protectionist agenda: they know that economic liberalism is, in relative terms, weaker in the eurozone than the wider EU – where the presence of Denmark, Poland, Sweden and the UK, among others, reinforces market economics. The manifesto’s reference to harmonising labour market rules and unemployment benefits in the eurozone will reinforce such fears.

As for questions of democracy and accountability, it is not only the British who argue that the European Parliament has a legitimacy problem and that national parliaments should play a bigger role in the EU. Since the CER published proposals in favour of enhancing the role of national parliaments, last October, we have had more-or-less sympathetic reactions from several governments, including Denmark, Germany, the Netherlands, Poland and Spain.

The Eiffel Group has come up with an interesting and thoughtful contribution to the debate on Europe’s future. On paper, many of the authors’ ideas for a more federal eurozone make sense. They seem to imagine that the UK and others outside the euro will try to block the integration that the authors regard as necessary. But the real obstacle to these proposals lies not in London but elsewhere. The euro countries cannot hand over powers to a new community unless their leaders can convince electorates – during election or referendum campaigns – that a federal government is desirable. So far, there is no sign that leaders in France or elsewhere are capable of that task.

In private, one of the authors has explained to me that the manifesto’s key point is that the current set-up does not work and is economically and politically unsustainable; he believes that both elites and citizens can be convinced of that point, and that they will therefore see the need for a tighter euro union. He may be right that the eurozone cannot flourish without significant reform. But politicians will find it very hard to persuade voters that a lot of powers now held by member states should be transferred to new or existing Brussels institutions.

Charles Grant is director of the British-based Centre for European Reform think-tank, which first published this article: French federalists propose a euro community

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