Reports 2011

Towards a 'federal Europe'?

20 October 2011

Federalism has now emerged as an acceptable topic of discussion between consenting adults,” said UK Liberal Democrat MEP Andrew Duff, a prominent supporter of a federal Europe.

European Commission President José Manuel Barroso and others are talking about a “federative moment” to convince financial markets that the EU is acting, Duff said.

“Barroso is right and he should be praised. This is a federative moment and such chances only come about once in a generation. If we fail to take action to salvage the euro, we’ll be condemned to a period of political and economic irrelevance,” the MEP claimed.

The balance of power between member states and the EU institutions must shift, he argued. “Decision-making must change from unanimity between prime ministers who barely understand one another, never mind economics, to QMV (qualified majority voting),” he said.

Economic union requires continent-wide redistribution of wealth, which cannot be achieved if it relies on the backing of national parliaments, many of which are captive to the “barely sane” forces of the right, Duff claimed.

He expressed hope that the upcoming EU summit would establish a group of wise men to draft a mandate for a new convention on treaty change.

Talk of a federal Europe immediately begs the question of what you mean by ‘federal’, said Richard Corbett, a member of cabinet for permanent European Council President Herman Van Rompuy.

The UK understands ‘federal Europe’ as a centralised EU super-state, but to academics the term ‘federal’ refers to different levels of government, all with democratic accountability, Corbett explained.

The EU has always been federal to a certain degree, given that the European Court of Justice and the European Parliament supersede national governments in areas of exclusive EU competence. But the system is ambiguous as unanimity between member states is still required on major issues like foreign policy and defence, the former MEP said.

Moving towards a fiscal union impinges on national competences and therefore requires unanimity. Such a union will necessitate harmonised rates of VAT and corporation tax, he said, but not income tax, which should remain a national competence. Arguably this is nothing revolutionary, as such harmonisation is actually part of building a single market, he added.

More important than treaty change are three kinds of pressure: pressure from stronger European institutions, peer pressure (via the European Semester, the Euro-Plus Pact and Europe 2020) and market pressure, Corbett argued. “Leaders are now much more aware that one country’s problem today can be yours tomorrow,” he said.

Despite its many flaws the EU has been a huge success, reunifying the European continent with its ambitious enlargement and fighting protectionist forces with the single market, said Pieter Cleppe, head of the Brussels office of think-tank Open Europe.

But today’s EU has lost its way, becoming embroiled in too much bureaucracy and losing public support as a result, Cleppe said. There’s a crisis of democracy because the EU isn’t supported enough among the general population – witness recent ‘no’ votes in Ireland and France – and the system is so complex that it is no longer clear what percentage of national laws are forged in Brussels, he added.

Moreover, the euro crisis means it is no longer possible for the EU to gain power through economic growth. Just as national parliaments and populations have only grudgingly backed austerity measures, they have only grudgingly accepted that their budgets may be dictated by other countries, Cleppe said.

As a result, Euroscepticism is rising and national stereotypes are on the rise – a situation which policymakers brought upon themselves by establishing an economic and monetary union without a fiscal one, he said.

The ‘Maastricht model’ of deeper integration will fail, Cleppe predicted, “because people don’t want it and it costs too much money.” Keeping the euro alive even until 2014 will cost 2.3 trillion, he claimed, arguing that doing so will become harder to justify democratically.

“The euro cannot be stabilised without fiscal transfers, which is about politics, not economics. So I don’t think the euro is politically sustainable,” Cleppe said.