06 July 2004

Forum Notes

Notes of the Meeting held at Scotland House, Brussels

The Brussels Summit may have achieved its top objective, an intergovernmental agreement on the text of a constitutional treaty, but a lengthy period of uncertainty lies ahead before a semblance of normality returns to the day to day operations of the European Union’s Brussels based institutions.


The Brussels Summit and the Constitution.

John Palmer, Political Director of the European Policy Centre, told the meeting that he final text on the Constitution preserves 85-90 % of the draft Constitutional Treaty proposed by the Convention on the Future of Europe. But with referenda on the constitution due in 9 or 10 countries, the entire project is still highly vulnerable to rejection in any one Member State, Palmer said.

The price of the agreement however was the entrenchment of the national veto in some key areas - including tax, foreign and security policy and - most problematic - in any future review of the constitution.

The media, inevitably focused on the claims and counter claims of success made by various EU leaders in the negotiations. The British government machine insisting that Prime Minister, Tony Blair, got his way over all the “red lines” which had been put around the UK veto.

But far less media attention was focused on the encouragement given by the treaty for the future development of a “core Europe” within a Union which is now set to enlarge even further beyond the present 25.

This is the political code written into many of the provisions which set the rules for “enhanced cooperation” between Member States more willing to go further down the integration road than others. In addition such core groups will be able to take their own decisions by Qualified Majority Vote (QMV) in some areas providing nothing they do undermines the collective EU acquis particularly in single market matters. Palmer said that the potential for enhanced economic policy co-ordination within the Eurogroup was an area which had not received enough attention in the press.

The Constitutional Treaty does set out the mission and values which drive the process of political union. It does, for the first time, create a legally judiciable framework for the rights of citizens, and it does extend the range of majority vote decisions. And it further enhances the powers of the European Parliament.

But, Palmer argued, it would be far better for the EU if Parliament had the right to nominate the Commission President with the decision ratified by the EU Council of government leaders. This would help to build a democratic polity in Europe, something which the recent European elections showed is badly needed. At present the Council nominates and the Parliament ratifies the Commission President.

The Commission itself will have one member from each Member State until 2014 when the college will normally be restricted to two thirds of the number of Member States. As already agreed, a chairman of the Council of Ministers will be appointed for five years to coordinate the work of a smaller number of more streamlined councils which will continue to be chaired by the rotating EU Presidencies.

With some very important exceptions the new treaty will make decisions by some form of qualified majority voting (QMV) the norm. Moreover it adopts a clearer, more transparent and effective system than the complex nightmare codified in the Nice Treaty. The “double majority” system was adopted with at least 55% of the Member States “comprising at least 15 of them and representing at least 65% of the population” being necessary in the Council. Conversely a blocking minority must consist of a minimum of four governments.

In total, QMV may in future be used in some 50 new policy areas although most of these are of secondary political order. For a range of highly sensitive matters in the fields of justice, foreign and security policy, economic and monetary policy and cases where the possible suspension or withdrawal of a Member State is involved, a “super” Qualified Majority Vote will apply. For this, a majority must consist of 72% of Member States, representing at least 65% of the Union’s population.

In a number of areas – notably in Justice and Home Affairs and social security – a series of emergency “breaks” have been introduced into the Convention’s original text. This will allow governments to appeal to the European Council to override any decision. However, after a period of up to 12 months, if no agreement can be reached, the way may be open for Member States so willing to move ahead on their own – implementing the proposed policies with decisions taken by QMV.

A case in point might be over social security provisions for migrants. However the British finally dropped their objection to the creation of a European Public Prosecutor to deal with cross border fraud crime.

The rigid opposition of the British Prime Minister, Tony Blair, ensured that the veto will continue to apply to all areas of tax policy – even to the fight against cross border fiscal fraud.

However, the way is now open to the members of the euro-group to implement common tax policies (for instance in the field of VAT harmonization and turnover taxes and perhaps “green” taxes”) by QMV – providing these do not threaten the integrity of the single market.

Decisions on foreign, security and defence policy (CFSP) will continue to be taken by unanimity although a super QMV may be used in areas where the new EU Foreign Minister has been invited to make a policy proposal. The rules under which groups of Member States may combine to implement CFSP through enhanced cooperation have been clarified.

Inevitably much attention will focus on the continuing weakness of the economic pillar in the governance of the EU. However the critical factor here is less institutional than the lack of political will generally among Member States to accept the need for sovereignty sharing and the disciplines which are necessarily involved. This also explains the failure of the Dutch government to uphold the proposal to strengthen the Commission’s role in supervising Member States’ performance under the Stability and Growth Pact and ensuring action is taken to deal with excessive budget deficits.

The search for a new Comission President.

During an acerbic debate, which underlined the divisions among EU leaders, there was no consensus at the summit on any candidate for Commission President to succeed Romano Prodi in November.

The split over the Commission President was nakedly political. At the start of the European Council the Belgian Prime Minister, Guy Verhofstadt, enjoyed the backing of France, Germany and a number of other countries. But during an ill-tempered dinner a blocking minority of Member States – led by the UK and Italy – left no doubt that Verhofstadt was unacceptable. This was not primarily because of his commitment to European integration so much as his support for a stronger European security and defence and his known criticism of the Bush Administration’s policies.

The argument was also very political in another, quite different, sense. It was fuelled by the growing assertion of the European Parliament political groups to evolve as fully- fledged, trans-national European political parties.

As the largest political party in the Parliament, the right of centre European Peoples’ Party, expects to have one of its own chosen.

Enlargement

The conclusions published after the European Council meeting underline, yet again, the extent to which enlargement is continuing. The EU leaders paid tribute to the “very substantial progress” made in the negotiations with Bulgaria and Romania. Indeed they have been concluded with Bulgaria and it is hoped that accession treaties with both countries can be signed “as early as possible” next year with a view to the entry of both in January 2007. However this depends on a final agreement with Romania and there are those who think that the next accessions should be delayed until 2009 which will be the date for a new Commission and a new European Parliament.

Meanwhile accession negotiations are to begin with Croatia early next year and might even be ready to join at the same time as Bulgaria and Romania – especially if the accession date is 2009 rather than 2007. Apart from Macedonia – which has already submitted its membership application – the other countries of the western Balkans are encouraged by the European Council to see Croatia’s progress as an example to emulate in their ambitions to eventually join as well.

All the signals remain positive also for Turkey’s desire to be given a firm date for opening accession negotiations when the European Council meets under the Dutch Presidency in December. Once again the achievements of the democratic Islamic government in Ankara on human rights, legal and police reform and the rights of Turkey’s large Kurdish minority were applauded. Its help in trying to rescue a political settlement of the Cyprus problem (exacerbated by the Greek Cypriot rejection on the United Nations peace plan) was also appreciated.



Europe and the World

In view of the plethora of global governance issues, ranging from the prospects for the Kyoto accord on the environment, through the completion of the Doha World Trade Round and the possible reform of the United Nations, Palmer said that he expects to see increasing pressure for the EU to define more clearly who speaks for the Union.


The Dutch Presidency.

Wiclef Poesiat, of the Dutch Presidency, which takes office on July 1 said that the priorities for its six month tenure of office would include preparations for the decision in December on whether or not formal accession negotiations with Turkey should be started, a focus on how to take the Financial Services Action Plan forward now that most of the associated legislation has been approved, the issue of improving the quality of regulation and trying to ensure that it is cost effective and the development of EU wide policies on migration.

He pointed out that the Dutch would have a referendum on the Constitution quite soon, about which politicians are inevitably nervous and therefore the issue of informing citizens about Europe and gathering support for the EU, will be a important. Do voters care about or understand what we are doing?, he asked.

But the next few months of the Dutch Presidency were going to be a strange period he said. A new Commission would be taking office in November, and before that new Members of the European Parliament would arrive. They would have to spend weeks finding their feet. Since in the financial services area all legislation is under co-decision rules with Parliament, inevitably proposals would move forward more slowly than might be desirable.

A high priority would be to take forward issues relating to anti-terrorism financing in both the Ecofin and the External Affairs Councils. These would include the Third Money Laundering directive, issues relating to cross border bank transfers, transporting cash across borders, asset freezes and the supervision of non-governmental organisations which might have terrorist links. The first three topics were under Ecofin guidance. An informal Ecofin Council meeting is planned for September.

Paying tribute to the progress made under the just-ending Irish Presidency, Mr.Poesiat said that perhaps as soon as November or December the reform of the 8th Company Law Directive on the supervision of auditors could receive its first reading in Parliament. It is seen as a high priority because it is linked to corporate governance reforms in the US under the Sarbanes-Oxley law and to countering accounting fraud.

An effort would be made to avoid a contentious inter-institutional battle with the Parliament over content, since this would not be good for the EU’s image he suggested.

Other financial services issues on the agenda for later in the year, perhaps around November, include examining the next steps on clearing and settlement structures in the EU, a Money Laundering Directive and of course, what to do about the Third Capital Adequacy Directive which would be the mechanism through which the new Basle II global capital adequacy regime for banks would be implemented in the EU.

Commenting on the presentation Graham Bishop pointed out that anti-terrorism mechanisms can cut across the goal of deeper integration of financial markets, and asked if officials were aware of the risk of losing the objective of securing a single payments area in the EU as a result of excessively intrusive anti-terrorism laws and regulations. He said that a vigorous impact assessment was needed since th4e Financial Services Committee had estimated that welfare gains from the payments area could be as great as 1 per cent of the Union’s GDP.

Mr Poesiat agreed that through cost/benefit analyses were needed but they cannot be the decisive factor in determining whether new rules should be implemented, just one of several important elements behind a decision.

Graham Bishop argued that the speed versus quality debate was now changing, with market participants demanding that getting new rules and laws approved on schedule was less important that “ getting it right.” The speed versus quality issue was relevant in the case of the money laundering directive because it is such a high political priority.This was not so true of the Capital Adequacy III Directive which is progressing slowly internationally, one participant argued.

Ian Vollbracht of the Secretariat of Economic and Monetary Affairs Committee of the European Parliament spoke on a personal basis. He said that that there was likely to be a "settling in" period required by the Parliament because of the new members’ need to learn the ropes. He noted that the competencies of the various committees had been clarified. But he pointed out that perhaps as many as four–fifths (80%) of the important Economic and Monetary Committee (EMAC) could be made up of MEPs who were new to that Committee.

It was not yet clear who would be the chairperson of the Committee, although there were some suggestions that the socialist group might get the post. Leaership and membership issues all had yet to be decided. Until the chair and the rapporteurs on legislation were decided, the political complexion of committees was unpredictable. If Socialist group MEP’s did decide to take a leadership role at EMAC, they might shift focus towards macro-economic policy, he suggested.

Another uncertainty he suggested related to the possible restructuring of party groupings around a stronger Liberal grouping.

He also noted that there would be uncertainty in the Autumn regarding the precise structure of the incoming European Commission, which would also take some time to settle into office. Parliamentary hearings with the new Commissioners would be held in late September and early October.

© Graham Bishop