On the slow road to recovery, destination unknown

19 June 2006

Commenting on the outcome of the European Council of 15-16 June 2006 on his return to the EU stage as Prime Minister of Italy, Romano Prodi declared that “the mourning is over and done with”.

Austrian Chancellor and EU President Wolfgang Schüssel echoed this sentiment, saying the Union had moved from a “period of reflection” to a “period of engagement”, and European Commission President José Manuel Barroso struck a similar tone.

So is the big political crisis triggered by the French ‘Non’ and the Dutch ‘Nee’ of last year definitively over? It depends on how one assesses the recovery and evaluates the overall state of the Union.

The European Council was not expected to take any major decisions. The Inter-Institutional Agreement on the Financial Perspectives for 2007-13 was finalised in the previous weeks, and the decision on the timing of EU accession for Bulgaria and Romania postponed until the autumn.

Moreover, just a couple of days before the summit, the Foreign Ministers of the EU-25 formally opened (and immediately closed) the first chapter in the accession negotiations with Croatia and Turkey; signed the Stabilisation and Association Agreement with Albania; recognised Montenegro’s independence; launched a delicate military operation to support the electoral process in the Democratic Republic of Congo; and made substantial progress on the establishment of a ‘temporary international mechanism’ to channel assistance directly to the Palestinian people.

In other words, the menu for this meeting of EU Heads of State and Government looked extraordinarily light and healthy, with next to no meat to chew on - especially when compared to the two previous end-of-presidency summits, which were entirely absorbed by the crisis over the 'Constitution' and the negotiations on the EU budget.

In the end, however, the discussion and the deliberations at this Council revolved around issues which remain controversial among the Member States, and they demonstrated that the recovery is still slow - and its ultimate outcome uncertain.

Reflecting (and reporting) on the ‘Constitution’

One year after the launch of the “period of reflection”, the European Council was expected to take stock of the debate. Taking up a series of proposals floated from different corners in the run-up to the summit, the EU-25 have adopted an essentially procedural decision based on what the Conclusions call a “twin-track approach”: focusing on 'delivery' as well as addressing the issue of institutional reform.

Building on President Barroso's call for a “Europe of results” a few weeks ago, the Union has committed itself to making substantial progress on a number of issues (listed in Section II of the Conclusions, ‘Europe at Work’) that are of direct interest and relevance to its citizens and can demonstrate the ‘added value’ of the EU.

Among them, special emphasis is put on those relating to the promotion of freedom, security and justice - in particular, visa and asylum regulations, a global approach to migration and the Union’s ability to respond to emergencies, crises and disasters - and to external energy policy, building on the outcome of the March European Council and the proposals articulated in a joint paper presented at the summit by the Commission and the High Representative for the Common Foreign and Security Policy Javier Solana.

Some countries, most notably France, also stressed the need to advance institutional reform and streamline decision-making by using all the possible loopholes in the existing treaties, such as the so-called ‘passerelle’ clause on Justice and Home Affairs. Others, instead, emphasised the need to address the broader issue of adapting the present institutions to an “ever wider” Union more boldly, without ducking the sensitive question of what to do with the Constitutional Treaty.

Section III of the Presidency Conclusions (titled ‘Looking to the Future’) draws a sort of roadmap for the EU-25. After stating that “further work [�] is needed before decisions on the future of the Constitutional Treaty can be taken”, the text envisages a three- to four-stage process:

1) The German Presidency is expected to present a “report” to the June 2007 European Council assessing the state of the discussion on the ‘Constitution’ and “possible future developments”;

2) This report would “subsequently” be examined by the EU-25 with a view to taking “further decisions on how to continue the reform process”;

3) At any rate, it is “understood that the necessary steps to that effect will have been taken during the second semester of 2008 at the latest”;

4) In the meantime, on the occasion of the 50th anniversary of the Treaties of Rome, an extraordinary European Council to be held in Berlin on 25 March 2007 is called on to adopt “a political declaration [�] setting out Europe’s values and ambitions and confirming their shared commitment to deliver them”.

Reading between the lines of the text and behind the official language, a number of things become apparent.

Firstly, despite its best intentions, the German Presidency will not be able to come up with any specific recommendations until after the Spring 2007 elections in France and the Netherlands. Only the new leaders elected then (with the French process including both presidential and parliamentary elections, thus eating deeply into Germany's stint in charge of EU business) will be able to make credible commitments to their EU partners on possible ways out of the constitutional stalemate.

This means, as the use of the word "subsequently" in the Council Conclusion implies, that this may not necessarily happen at the June 2007 European Council: a further meeting may have to be called during the ensuing Portuguese Presidency. By then, the likely accession of Bulgaria and Romania to the EU will have triggered the Nice Treaty obligation to reduce the size of the Commission, thus calling for an Intergovernmental Conference which, in turn, could become the occasion for a broader and more comprehensive reform of the EU institutions and procedures.

The deadline for completing this process is set, somewhat ironically, for late 2008, during the French EU Presidency. This means that the country which not only hosted negotiations on the last treaty (Nice 2000), but also triggered the current crisis, will be called upon to solve it: a blessing and a curse, in a way, and certainly a heavy responsibility for the new French leadership. It may also mean that, after two Treaties named after Dutch cities, the EU may end up with two named after French ones: from Maastricht to Amsterdam, from Nice to � Strasbourg maybe?

Finally, taking up a suggestion made by President Barroso last month, the EU-25 will work on a solemn declaration of “values and principles” to be delivered on the occasion of the 50th anniversary of the Treaties of Rome.

On the eve of the summit, talks were held between Mr Prodi and German Chancellor Angela Merkel on the most appropriate location for such an event, resulting in another “twin track” agreement - the declaration will be delivered by the 25 governments at the Berlin European Council and a solemn celebration of the anniversary will be held in Rome with the participation of members of all national parliaments and the European Parliament.

National and inter-institutional sensitivities apart, the declaration may become part of the eventual institutional reform package, as some consensus seems to be forming around the possible shape of a revised EU Treaty: the new text would certainly not be called a ‘Constitution’; it would be shorter and simpler; and it would enshrine the values and principles upon which the Union is built, the rights it intends to enforce and defend, and its basic institutional architecture and procedures.

Paradoxically, therefore, it could become much more “constitutional” in spirit and content than the current 'Constitutional' Treaty (which is, in fact, mainly a modification and reorganisation of the existing treaties).

That said, the EU-25 are still far away from agreeing on the substance of a new institutional deal, although the fact that a tentative roadmap and timetable have been drawn up is progress and may help create momentum at a later stage.

The only reform EU leaders put in place at this summit was the new ‘transparency’ regime. This means that from now on, “all Council deliberations on legislative acts to be adopted by co-decision shall be open to the public”, including the votes and explanations given by Council members of the way they voted.

This was long overdue, but still encountered some last-minute resistance (notably from the UK) which is partially reflected in the proviso that “the Council or Coreper may decide in individual cases that a given deliberation should not be open to the public”. The decision will be reviewed after an initial six-month trial period.

Absorbing enlargement(s)

The most controversial issues - both before and during the European Council - were those related to future enlargements.

The draft Conclusions circulated by the Austrian Presidency a few days before the summit drew criticism from some Member States for putting too much emphasis on the EU's so-called “absorption capacity” as a ‘criterion’ for deciding on the admission of new members.

Although barely defined in concrete and measurable terms, this notion was (re)introduced into the European debate last year in the wake of the two failed referenda, and relaunched more recently in a discussion paper circulated by France.

The way in which it had been incorporated in the draft Conclusions prompted a number of Member States - including the UK, Sweden, all the central Europeans and Italy - to demand a rebalancing of the text. They insisted on a more positive assessment of past and future enlargements, especially as “absorption capacity” was presented as an additional and unqualified hurdle on the road to membership.

As a result, the final version of the Presidency Conclusions acknowledges that enlargement has not only proved a historic opportunity to ensure peace, security, stability, democracy, the rule of law, growth and prosperity in the Union as a whole, but is also “helping the EU to become a more competitive and dynamic economy and be better prepared to meet the challenges of a globalised and changing world”.

In the section devoted to ‘general questions of future enlargement’, the text states that the European Council in December 2006 will “have a debate on all aspects of further enlargements, including the Union’s capacity to absorb new members, and further ways of improving the quality of the enlargement process on the basis of the positive experiences accumulated so far”.

More specifically, “the pace of enlargement must take the Union’s absorption capacity into account” [emphasis added], which seems to imply that only the timing and the speed, and not the substance and the openness of the process, might be affected.

Still, the precise contents of the notion remain vague, as does the distinction between being a ‘criterion’ or just a ‘condition’ for membership. During the final press conference, Chancellor Schüssel appeared to hint mainly at the budgetary implications of taking in new members, when he said that the latest enlargement was decided prior to agreeing on the new Financial Perspectives. However, he acknowledged that the term “absorption capacity” was unfortunate and risked sending out all the wrong messages.

For this reason, too, the European Council has mandated the Commission “to provide a special report on all the relevant aspects pertaining to the Union’s absorption capacity” for the December summit, which “should also cover the issue of present and future perception of enlargement by citizens and should take into account the need to explain the enlargement process adequately to the public within the Union” [emphasis added].

In other words, the internal EU debate over enlargement is set to continue. It is also likely to become to the real other ‘track’ of the discussion over institutional reform - although the two issues have not been formally linked so far.

On top of that, the European Council was enlivened by another controversy related to enlargement - not of the EU as such, however, but of the euro zone. Following on from the progress reports by Ecofin and the European Central Bank, and the Commission's recommendations, the summit decision to take in Slovenia as the 13th member of the euro zone from 1 January 2007 was a formality.

In relation to the other main candidate, Lithuania (Estonia already knew it needed a bit longer), the draft Presidency Conclusions had simply taken note of the fact that the country did not technically meet the inflation target set in the Maastricht Treaty and, therefore, its status would remain unchanged.

At the Council, President Valdas Adamkus and the new acting Prime Minister Zigmantas Balcytis contested the decision, and took the initiative of issuing a joint statement with the Czech Republic, Hungary, Latvia, Poland and Slovakia calling for “a discussion on the interpretation of the price stability criterion in order to better reflect the economic dynamics of the enlarged EU”, hinting also at “uncertainties that persist” in its application.

The initiative visibly irritated both Eurogroup Chairman Jean-Claude Juncker and ECB President Jean-Claude Trichet, and President Barroso made it clear to the six that a separate declaration would be “unhelpful” and would only underline their minority status. He also later contested the idea that there had been “uncertainties” in the application of the criterion. As a result, the statement was withdrawn, Slovenia was taken in as expected and a few words were added to the final text of the Conclusions, stating that “the Commission concludes that there should be no change for the time being in Lithuania’s status”.

The dispute revealed two things: a widespread feeling among the new Member States that they are being treated unfairly as compared to those in the EU-15; and the inadequacy of the rules governing accession to the euro zone, which - unlike those in the Growth and Stability Pact - have not been changed since the Maastricht Treaty.

Over the past year, Lithuania has missed the inflation target by less than a decimal percentage point, while its other macroeconomic indicators are comfortably in line with the criteria (and far better than those of some current members of the euro zone).

It is true that, to achieve price stability, Vilnius recently imposed administrative controls on prices, and this means that inflation will go up again dramatically as soon as the controls are lifted. However, the reference value for price stability is currently calculated on the basis of the inflation average in the three best-performing Member States - in this case, Poland, Finland and Sweden - plus 1.5 percentage points.

In other words, if “uncertainties” exist in its application, they are political, not technical: but the technical aspect itself is open to challenge.

The argument boils down to three elements:

a) It is a moot point whether countries outside the euro zone (such as Poland and Sweden) should be used as benchmarks, now that the euro is in place;

b) Lithuania’s inflation rate remains below those of euro-zone members such as Ireland and Spain;

c) The same Maastricht criteria were interpreted quite flexibly, in the past, to allow in such countries as Belgium and, above all, Italy.

In order both to dispel the bad feeling created by the controversy and to make the enlargement of the euro zone a success story, it might be wise for Ecofin to reconsider these rules at the earliest possible opportunity. This could further contribute to the “Europe of results” advocated and endorsed by the European Council.

Austria felix?

It is always very difficult - and somewhat arbitrary - to evaluate the performance of an EU Presidency. What criteria should be used? The goals that the Presidency set itself at the beginning; the overall political context in the EU and/or inside the country in question; unexpected external events which interfere with the ordinary business of the Presidency; the quantity and significance of the decisions adopted; the profile the country has gained (or lost) in Europe and its more or less successful defence of “national” interests and priorities; the overall advancement of the European integration process; or some combination of all these?

In the case of Austria, of course, the assessment must take into account the appallingly difficult environment surrounding the whole debate over the ‘future of Europe’, which tends to encompass - at least implicitly - both the fate of the Constitutional Treaty and the scope of the enlargement process.

It is no accident that these issues have dominated the recent debate (and the latest European Council itself) and generated so few results. The quantity of papers, reports and communications delivered on various topics appears, at times, to be inversely proportional to the number of relevant decisions taken.

The Member States are divided over key questions, both between themselves and internally. The Commission has adopted a relatively low profile, often tackles the problems from the sidelines rather than from the front, and sometimes picks up causes that are elusive or marginal. Most importantly, the continent's economic prospects are still worrying, both in the short and especially in the long run - all the more so if decisive reforms are not implemented.

Against this background, some progress has been made over the last six months on, for instance, the final package for the Financial Perspectives and the services directive: on these issues, the Presidency has not been the only player, but it has managed to cooperate smoothly with the Council and Parliament.

The decision on Bulgaria and Romania has been postponed, and will be dealt with by the Finnish Presidency. The EU has further increased its international profile and active engagement in various parts of the world, as epitomised in particular by Javier Solana’s mission to Teheran in early June - on behalf of not only the EU but also the US, Russia and China - to outline new proposals to bring Iran back to the negotiating table over its nuclear programme.

All this has been in part due also to the low-key, but hands-on approach of Austrian ministers and officials, whose experience has been particularly useful in addressing the problems in the neighbouring Balkans.

Still, there is perhaps one issue in which the overlap between a peculiar national interest (made more acute by the approaching parliamentary elections in Vienna, scheduled for November) and the responsibility of acting in the interest of the EU as a whole has created some unnecessary problems.

Austria embraced, perhaps too hastily and naively, the notion of “absorption capacity”, in the belief that it could be used to create a critical mass against admitting Turkey to the EU - a well-known strategic goal for Vienna.

In doing so, however, the Presidency also won the support of countries whose goal is to stop (or slow down indefinitely) the enlargement process altogether, whereas Austria is much more selective in this respect, being a keen advocate of speeding up accession for all the Balkan countries.

Incidentally, this is probably why Chancellor Schüssel has given the impression - notably, at the European Council - of having some second thoughts about the way in which the whole issue had been addressed, generating a particularly fuzzy formulation in the Conclusions.

In sum, two cheers for Austria - and all the best (possible) to Finland, which is also about to become the 16th Member State to ratify the EU ‘Constitution’.