Thursday, June 30, 2011

Greece has a choice. Austerity or Bust

For Ollie Rehn to get angry, it has to be serious. The mild-mannered European Commissioner for the monetary union lashed out at Germany for saying there should be a Plan B for the Eurozone if Greece fails to implement a €28bn austerity package.

Luckily for Commissioner Rehn, the vote today in the Greek parliament meant that Greece finally commits to doing something serious to tackle a bloated public sector and inefficient tax and revenues service. Today’s vote was a defining moment for Greece and the Eurozone.

Put simply, without austerity measures Greece misses its debt and deficit targets; if the targets are not met, lenders will not make the quarterly aid payments, if those payments are not made then Greece defaults, if Greece defaults then the ensure Eurozone comes under serious pressure. It’s not just the Greeks that are under pressure – but Germany, France – and even the UK, a country outside the Eurozone and not even part of the latest bail-out – are feeling the pressure too. Greece knows what is at stake for its Eurozone partners which is why it has not simply rolled over straight away but rather held out for better terms and supplementary aid measures.

The €120bn bail-out must work – and it can only work if Greece gets its finances in order. The future of the Eurozone is at stake. Forcing Greece out of the single currency is not the solution. It shouldn’t even be an option. Greece will get some benefit in the long term of a devalued Drachma but there would be turmoil in the meantime. It’s not an option for the Eurozone either. A well-placed source in the Council told me last night that the knock-on effect would be enormous.

David Cameron. The UK Prime Minister got assurances that the European Financial Stability Mechanism will not be used for the bail-out at the European Council last Friday. The UK does not have a veto on how the EFSM is used – even though it has contributed 15% of the fund. However Cameron must be hoping that his decision to walk away from the Greek bail-out doesn’t haunt him. A Greek sovereign default could provide a whole new set of problems for the City of London.

José Manuel Barroso. The Commission President has sweetened the pill with EU structural funds – and done so without raising new money. Only a quarter of the €20bn funds allocated to Greece for the period 2007-2013 has been spent which means there is plenty of EU funds for the next 2 years. He has also pledged money to fund an upgrade of the country’s tax IT infrastructure. Despite criticism that this smacks of nation-building for a third-world country, this initiative is a smart move.

Villains: Antonis Samaris. The Centre-Right party leaders were right to round on Greek opposition leader Antonis Samaris last week. He shouldn’t be playing petty political games.

Angela Merckel: The German Chancellor gets a mention for “kicking the can down the road”. The second bail-out could have been avoided if Germany had forced Greece to take action earlier.

Neither a hero nor a villain in this story, Ollie Rehn is more like a referee between Greece and other Member States. The last time anyone saw Ollie angry was when my colleague, Tobias played against him in Sweden-Finland football game and he was unfairly tackled. Mr Rehn is clearly a big believer in fair play which is good news for all the members of the Eurozone that he needs to keep on-side.

Friday, February 18, 2011

Barroso Push on Europe2020 Agenda

The European Commission President José Manuel Barroso was in London yesterday to meet with British Prime Minister David Cameron in a bid to shore up support for his flagship Europe 2020 strategy.

Mr Barroso is personally spearheading the drive to ensure Member States implement the numerous recommendations laid out in the strategy. Europe 2020 is a successor to the Lisbon Strategy on jobs and growth and is designed to ensure that Europe can compete with emerging economies such as China, India, Brazil and Russia. Inevitably, the strategy is laden with targets for improving productivity, competitiveness, education and skills, both at an EU level and at national level.

This is starting to ruffle feathers in London where Ministers are starting to realize just how intrusive the targets can be. At a Council meeting on Finance Ministers in Brussels on Tuesday, UK Chancellor, George Osborne signalled that the European Union had no place in setting targets for reducing early drop out rates in British schools. Europe 2020 sets a European-wide target of reducing early-school leaving at 10% or less and will publish an action plan next week. The new UK Government is averse to target-setting at the best of times but to have them imposed from Brussels must be especially galling.

However, the UK along with the 26 other Member States, have signed up to the Europe 2020 strategy and can’t cherry-pick the targets they would find easy to meet, as much as they would like to. The EU has no competence in national schools policy and even though a single market is beginning to develop in European universities, the EU has a limited role in higher education too. Nevertheless, Europe2020 is unapologetically focused on education and skills. The competitiveness challenge will only get worse if standards in skills and education are not raised.

The scale of the challenge is considerable. Europe suffers from a massive skills shortage which stems from under-performing schools. In 2009 more than six million young people, 14.4% of all 18 to 24 year olds, left education and training with only secondary school qualifications or even no qualifications at all.

The European Commission wants to have by 2020 at least 90% of young Europeans completing upper secondary school. Europe2020 even has targets for toddlers. Europe’s education ministers have agreed to target that 95% of four year-olds should have access to pre-school education.

Europe is also poor at importing skills. Almost 70 million migrants (about 43% of the world’s total) come to Europe but highly skilled foreign workers account for only 1.7% of all workers in the EU, compared to 9.9% in Australia, 7.3% in Canada and 3.5% in the United States.

Europe2020 sets targets for increases in employment levels also. Employment rates in the working age population should increase from 69% to at least 75%. Of course, this would require growth in the economy – and here too the Europe2020 strategy sets out some priorities for measures that support growth in sectors such as digital communications and renewable energy. In turn, investment in research and development of new technologies is required to reach at least 3% of GDP.

Signing up to these general policy aspirations was easy – who doesn’t want to see employment levels increase or educational standards rise? However, things are starting to get tricky now that national reform programmes, based on the 2020 guidelines, have to be drawn up and “political warnings” issued if progress in structural reforms too slow.

Any Europe-wide strategy for competitiveness and growth will only work if there is continuous political will and on-going peer-pressure. Some of the targets – such as reducing the number of people living below the national poverty lines by 25% and lifting 20million people out of poverty, are very ambitious and may be quietly dropped. However, the Commission will still need to focus on the targets that can be achieved if it improves competitiveness prosperity in the EU.

Political will is difficult to maintain. Already some member states are diverting funds away from R&D as massive budget cuts force governments to make some painful decisions. Commission President Barroso will have to keep up the pressure on national leaders like David Cameron, to stop the Europe2020 project from de-railing and going the same way as its doomed predecessor, the Lisbon strategy.

Friday, February 11, 2011

Human Rights in Europe - Where does the UK stand?

“IT’S UP EURS”, says today’s Sun Newspaper. The headline in the Daily Express is “BRITAIN IN THE EU: THIS MUST BE THE END”. The Daily Mail’s front page reads; “DAY WE STOOD UP TO EUROPE”.

Its not uncommon of course for the media in the UK to confuse anything “European” with the European Union. Whether it is the Council of Europe, the European Council, the European Courts of Justice or the European Court of Human Rights, they are all “Eurocrats” who can over-ride the UK’s national interests. Of course, serious matters of sovereignty are raised when reporting on any supra-national issue but the media could be more careful about apportioning blame.

The UK Parliament last night kept a ban on the rights of prisoners to the vote despite a ruling from the European Court of Human Rights. It was immediately hailed in the press as a victory against Europe, with implications even for the UK’s membership of the EU – even though the European Court of Human Rights is not an EU institution. European Commission officials can only despair of news reports in the UK which mislead the public on the EU.

Members of Parliament voted overwhelmingly to adopt a backbencher’s motion which calls on the Government to oppose the granting of democratic rights to convicted prisoners. However, it would only be fair to say that the UK government was never instructed to give all prisoners a vote – the ECHR had said that a blanket ban on prisoner votes was incompatible with the European Convention on Human Rights.

The UK Attorney General, Dominic Grieve has acknowledged this and believes that the UK could comply with the most minimum application of voting rights – perhaps for those on sentences of less than four years. He has said that the UK would be in breach of the “rule of law” if it simply ignored rulings from the court. For a country that is a big believer in the rule of law, simply rejecting the rulings is not an option.

The question is: should the UK leave the European Convention on Human Rights and have instead a supreme court in the UK which interprets a Bill of Rights. UK centre-right think-tank, the Policy Exchange, this week issued a timely report on the UK and ECHR jurisdiction which argued that the UK could withdraw from the ECHR’s jurisdiction and quit the European Convention which the UK signed 60 years ago.

The author of the report, Dr Michael Pinto-Duchinsky, believes that mission-creep has meant the court has gone beyond protecting human rights and instead is influencing policy by issuing increasingly eccentric judgements. He also points to the lack of experience of the Courts judgements and a backlog of cases that would take 46 years to clear.

Dr Pinto-Duchinsky believes that withdrawal would not affect UK membership of the EU. However, if the UK does leave the jurisdiction of the ECHR, will there be pressure on the government from human rights groups to sign up to the European Union’s own human rights rules?

In 2007 the UK opted-out from the European Union’s Charter of Fundamental Rights.

An intergovernmental conference in 2007 made the Charter legally binding without incorporating the text into Lisbon Treaty. Nevertheless, the Charter contains no new rights beyond what is covered by the Convention.

The effect of the opt-out protocol will essentially be that the charter cannot be used to challenge current UK legislation in the courts or to introduce new rights in UK law. One argument for the opt-out was that it was unnecessary given that the UK, like all other EU member states was already a signatory to the European Convention of Human Rights which is much more binding. But for how much longer? The United Kingdom has traditionally been a standard-bearer for human rights but withdrawing from international and EU treaties on human rights could damage that much-cherished reputation.

Friday, January 28, 2011

EU Structural and Cohesion Funds need root and branch reform

Members of the European Parliament are refusing to approve the EU’s 2009 accounts because of irregularities in the way structural funds have been spent by Member States. The European Parliament’s Budgetary Control Committee this week demanded assurances from the European Commission that action will be taken against those EU countries that have mismanaged EU money before it agrees to “sign off” the accounts. Since the European Parliament is the so-called “discharge authority”, effectively relieving the Commission of its management responsibilities for the 2009 budget, this is no idle threat.

It is a novel idea to many, but the European Parliament is assuming the role of a scrupulous auditor and that has set it on a collision course with both the European Council and the European Commission. It’s not the first time that the Parliament has threatened to block the discharge. In 2008, a third of paid-out EU funds were declared as not having been managed according to European Commission rules. However this latest “bras-de-fer” is more likely to force the Commission to take much tougher action. If it does not - and the administering of structural funds continues unreformed - then the whole funding system could un-ravel.

The cohesion and structural fund system of the EU is vast. Designed to aid the poorest regions and sectors of Europe, the funds make up 35% of the EU's annual €130 billion budget. There is some evidence that they do have the effect of protecting the most vulnerable regions in Europe. However, what are we to make of an Elton John concert in Italy funded from structural funds to the tune of €1m and a Slovakia local soccer team funded by €600,000 earmarked for integrating the Roma community? Clearly there is abuse and it is widespread. It reflects badly on the EU which is invariably blamed for misspending rather than the Member State. It’s true that 80% of structural funds are jointly managed by the European Commission and Member State authorities but, in reality, the Commission has very few resources to monitor EU spending on national projects and initiatives. For the little credit the European Commission gets for projects that work and are well-run, they attract much more criticism for a culture of corruption and mismanagement that is seemingly beyond its control.

Would it be in the EU’s interest then to repatriate structural funding to the Member States? The Commission has jealously guarded its spending powers – but at what price? It takes the blame when it is not being tough enough with Member States where spending controls have been lax – and yet when it does take action, it only sours relations with the Member States. It’s a lose-lose situation.

Back in 2003, the then UK Chancellor of the Exchequer, Gordon Brown raised the prospect of “repatriating” structural funds. He believed the policy would be in line with the principle of subsidiarity – under which decisions are devolved to member states where possible. However, the idea was quickly dropped. The UK went onto agree a settlement of €308bn for structural funds for the period 2007-13, €9.4bn of which went to the UK.

It was recognised that for all its faults, structural funding was still important for the single market to function. Its aim is to correct economic imbalances between the wealthiest and poorest regions in Europe by funding job creation schemes in areas hit by industrial decline. It is arguably now even more important to have more cohesion in the EU in order to save the single currency from being vulnerable to further shocks.

However, the failings of the EU funding regime are too serious and too many to ignore. The whole system needs re-calibrating. The Centre for European Policy Studies has said, “In a climate of austerity, this will be a very serious point. The EU can only defend the structural funds if you can justify them and show that you are not misusing them.”
Of course, a number of Brussels insiders will just dismiss this as an over-reaction. Error rates are on the decline – and the Court of Auditors in November last year concluded that in most policy areas, over 95% of payments in 2009 were made correctly. However, MEPs have said that this is an unrepresentative sample of mostly small northern countries.

The Parliament wants Member States to provide assurances that adequate controls are in place but only four countries – Denmark, the UK, the Netherlands and Sweden – have agreed to submit any national management declarations. MEPs are hoping that the Commission will apply further pressure on Member States while they hold out from signing off the 2009 accounts. The Commission is trying to make the case for salvaging most of the structural funds for the next spending round 2013-2020 and MEPs playing hard-ball over the discharge does not help. Or perhaps it could be a blessing in disguise for the Commission: A chance for root and branch reform of structural funding? The huge regional disparities in the single market and in the Eurozone do require public investment programmes that generate local growth in areas abandoned by the private sector but the structural fund system is failing to meet the challenge – and is becoming more of a burden to the European Commission.

Monday, January 17, 2011

David Cameron's Eurosceptic Headache

The UK Prime Minister, David Cameron, this week faced down a rebellion from back-bench Conservative MPs over Europe. Even after Europe minister David Liddington promised to make last-minute changes to toughen up the European Union (Referendum Lock) Bill, 27 MPs voted against it for not being tough enough on EU sovereignty.
The Bill aims to strengthen the UK procedures for agreeing to or ratifying certain EU decisions and Treaty changes, by providing for a referendum throughout the United Kingdom on any proposed EU treaty or Treaty change which would transfer powers from the UK to the EU.

It's not the first time in his premiership that Mr Cameron has faced a rebellion on Europe: Last year, 37 Tory MPs broke the government line to demand a cut in the EU budget. The question is why David Cameron decided to re-open a Pandora's box when it was entirely avoidable and when the Bill has almost no effect on the relationship between the UK and the EU in any case.

The British Government was keen to play up the significance of the Bill. Foreign secretary, William Hague said at the weekend the plans were "the strongest defence of national democracy put in place anywhere in Europe", and “a massive advance for national democracy”. David Cameron told BBC Radio 5 live on Sunday that “we will make sure that if politicians try to take powers from Westminster to Brussels you, the British people, will be given a referendum". But do the Bill's ambitions match the hyperbole?

The purpose of the Referendum Lock Bill was to ensure that governments abide by promises made to hold referendums on EU Treaty changes. Yet, the government would still in effect have the last word on whether a referendum would be needed. This Bill is not binding on furture parliaments and governments and EU law would still keep its supremacy over UK law. European Court of Justice rulings would still be applicable to the implentation of EU law in the UK.

No wonder then the eurosceptics are not happy. In any event, the Bill misses the point. Many Conservative Party MPs and members were never interested in so-called safeguards against more competences for the EU: they were settled on nothing less than repatriation of large amounts of policy-making from Brussels to London. However, a coaltion with pro-European Liberal Democrats has prevented Mr Cameron from pursuing repatriation of powers. And by refusing to concede to any of the euro-sceptic amendments he has ended up in a position of defending a Bill that was designed to appease his rank and file over Europe but which has only infuriated his euroscpetic members.

One such disgruntled euro-sceptic is Douglas Carswell MP, who wrote on his blog that "This bogus EU Bill is no substitute for the referendum we were promised." He continues to say that “… this Bill will do absolutely zip to halt the European commission proposals being cooked up right now in Brussels, which are to give Eurocrats a direct say over the formation of economic policy in Euro zone, and non-Euro zone countries alike.”

In a nod to his eurosceptics, Mr Cameron was quick to say this week - when French Prime Minister Francois Fillon came to visit - that the UK would take no part in any harmonisation of economic or social policy that may come about in order to support the beleagured single currency.

M. Francois Fillon said, "I've asked the UK to look at the arguments for harmonisation in a favourable light." He added: "I'm not asking the UK to join the eurozone ... [the] British want to remain British". "The question is: is the UK ready to accept or encourage greater integration of the eurozone or is the UK distrustful of that and will it create obstacles and make it more difficult to happen?"

M. Fillon was relieved to hear that Mr Cameron back more social and economic harmonisation for Eurozone countries. But it remains to be seen whether his eurosceptics will be satisfied with his insistence that the UK will not be drawn into new economic governance measures.

The EU Bill has let the genie out of the bottle. This was the week that saw the return of the eurosceptics. And Mr Cameron may need to start thinking of ways of keeping them on board without upsetting his coalition partners. An almost impossible task.

Friday, January 7, 2011

What 2011 has in store for the European Union

In Paris, British Chancellor George Osborne warns other EU Member States to follow the UK’s example of implementing austere spending cuts to tackle Europe’s deficit problem; In Budapest, the European Commission President berates the Hungarian Government over controversial new media restrictions; In Tallinn, Estonian shoppers are getting used to the Euro which has just replaced the national currency, the Kroon.

So begins the New Year for the European Union. After a miserable 2010, Brussels is hoping for a more successful 2011. There are some promising signs. Estonia has just become the 17th member state to adopt the Euro and the switchover on New Years’ day went smoothly; the new EU financial supervisory advisory bodies are now in operation and the EU’s diplomatic service, the External Action Service is now up and running.

However, the Hungarian Presidency of the European Council has got off to a poor start. The Commission President, Jose Manuel Barroso is in Budapest today where he will raise concerns over new media laws that the OSCE believe gives Viktor Orban and his government sweeping powers to restrict press freedom. The new Hungarian government has also introduced new taxes for foreign firms – mainly German - and a new citizenship law that allows ethnic Hungarians in Slovakia to get a Hungarian passport.

It is not yet clear whether the new media laws, which include forcing journalists to reveal their sources and imposing heavy fines on newspapers for “offending human dignity”, contravene European law but the international criticism has forced the Commission President to put pressure on Budapest. The Hungarians – a relatively new member of the EU – have only just got used to interference from the European Commission. What is new and seemingly even more offensive is the criticism from other Member States in their domestic affairs. On Tuesday 4 January, France, Germany and the UK openly criticised the media law saying it is “incompatible” with European press freedoms. Peer pressure in the EU is not new but direct and public interventions like this is a new departure for Member States and we should expect to see more of it during the course of 2011.

Prime Minister Orban admits that the criticism over the media law, foreign taxes and new citizenship rights for ethnic Hungarians has over-shadowed the start of the Hungarian Presidency but this should not cause any embarrassment for the EU. The rotating presidencies are over-rated – they last just six months, inherit a pre-existing agenda and have no executive powers. Post-Lisbon, it cannot claim to preside over the EU when a new Council President has been appointed on a more permanent basis.

What matters most to the success or otherwise of the EU is not so much the behaviour of the rotating President of the European Council but the political dynamics between the big Member States – in particular the Big 3 – Germany, the UK and France.

George Osborne’s message to G20 counter-parts meeting in Paris on Thursday 6th January has rankled with some EU Member States. To some, Mr Osborne’s warning to Eurozone members that they need to following the UK’s lead and introduce swingeing spending cuts, sounded like hectoring and was reminiscent of the tone that Gordon Brown had taken when he was Chancellor of the Exchequer. However what was most telling was Mr Osborne’s line about the Eurozone needing to adopt more economic governance measures to support the Euro (even if he did not put it in those words). Is this a sign that the UK is not just relaxed about a two-speed Europe but actively willing it? Maybe his advice is sincere. Eitherway, I predict that the UK will have a demonstrably more arms-length relationship with the EU in 2011 even if it means losing influence and its position as one of the leading three member states.

Other predictions for 2011? Well looking at the Commission’s work programme, it will be a busy year for the Internal Market Commissioner Michel Barnier. He will be driving forward new regulations for Credit Rating Agencies, a new framework for bank crisis management, applying new bank stress tests, amending capital requirement directives, reviewing the Market Abuse directive and more besides. Watch out too for a new initiative on the posting of workers and another revision of Working Time rules. There will be proposals for Smart Borders to set up an entry / exit system for immigration control. There will be new rules on EU procurement, a new 10 year plan for transport, new measures on economic governance and, of course, a settlement on the next round of EU spending 2013 – 2020.

It is a heavy regulatory agenda and will force Member State governments to make some of the far-reaching decisions which they have managed to avoid in 2010.

The big policy themes for 2011 will be closer economic convergence, better scrutiny of EU spending and even a direct EU tax – just what the EU needs to make itself popular! Well, of course, it depends on who will be taxed. Besides, there will be a few populist measures aimed at making the consumers life a little easier. 2011 might not be the year when everyone starts to love the EU but it might be the year it is disliked a little bit less. Let’s see how the year ends but the start of the year suggests it’s not quite going to be business as usual.

Saturday, December 18, 2010

Bail-outs and Budgets: The Big Three leading Europe

European leaders are hoping that just two sentences to be added to the Treaty will be enough to put an end to the on-going crisis that has plagued the Eurozone in 2010. EU Heads of State reached an agreement yesterday in the Justus Lipsius building in Brussels on a permanent mechanism for bailing-out stressed Euro-zone countries.

Germany succeeded in ensuring that the mechanism was only used in extremis. However, it failed to make it a condition that it is activated only as a last resort – an important distinction given Chancellor Merkel’s nervousness about the treaty change.

“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality” ; – the Eurozone is counting on these two sentences to deal with the single currency’s inherent flaws. It was Germany – with the support of France – that nailed an agreement where others failed. The Italy-Luxembourg proposal for Europe-wide bonds was dismissed as was the Belgian proposal to increase the £440bn fund to buy bonds from at-risk countries.

The European Stability Mechanism will replace the European Financial Stability Facility (EFSF) and the European Financial Stability Mechanism (EFSM) in 2013. The UK also got what it wanted. The Council agreed to limit explicitly the application of the ESM to Eurozone countries – to reassure UK Prime Minister David Cameron that the UK would not be sucked into any bail-out obligations.

Mr Cameron is having a good summit. He has guaranteed the UK won’t be part of the Eurozone stability mechanism. He has had more mixed results in his other battle to avoid any increase in the EU budget. The UK has agreed to the increase for 2011 to be kept under 3% without giving MEPs anything in return for backing down over demands for a 6% increase. However, Mr Cameron had gone into budget negotiations with the intention for a freeze on the budget.

The European Parliament on 15th December backed down on its demands to have a greater role in the post 2013 multi-annual budget negotiations in return for a limited increase to the 2011 budget. It has been a humiliating end to 2010 for the European Parliament since winning new powers under the Lisbon Treaty 12 months ago. The Council position – held together by the UK and Germany – took the European Parliament to the brink. The alternative would have been a 2011 budget being approved on a month to month basis. The Parliament finally acknowledged the troubles this would bring.

Mr Cameron is reported to have struck a deal last night with Germany and France on the 2013-2020 budgets which would in effect bring about a real-term freeze in EU spending. The acquiescence of the French suggests that this deal would most likely affect the EU cohesion funds which disproportionately affect the Member States in Central and Eastern Europe. Poland will lead the backlash against the deal, if it transpires, given that it is a large beneficiary of cohesion funds. The French will have insisted on ring-fencing agricultural funds. France has been a long-term defender of the Common Agricultural Policy and this time the Germans are supporting them. Germany had recently signed a joint declaration with France calling for a strong CAP.

The UK would get to keep its rebate as part of the deal. France and the UK would be the winners; Poland and her East European neighbours the big losers. This is a scenario that ResEuropa had floated a few weeks ago and while there is no confirmation of the deal, reports in today’s press suggest it could well be on the cards. David Cameron will need to be careful to explain why he is not pressing for reductions in CAP rather than the cohesion funds.

The EU big three have out-foxed the Commission President Mr Barroso who will want to see cohesion funding kept in tact since this funding is regarded as European solidarity in action.

Time will tell whether this summit has marked the start of a powerful axis of UK, France and Germany – or whether it was just the easy thing for Mr Cameron to do since he will not have the appetite to deal with yet more calls to give up the UK rebate. I suspect that this new alliance won’t last for long: It was a minor miracle that the France and Germany could agree on the stability mechanism. Nevertheless this week demonstrates that, even if only for now, the big three are in the driving seat. What both the agreement on the budget and on the stability mechanism show is that when it comes to Europe, Mr Cameron and his coalition government will do almost anything for a quiet life.