The multiplicity of problems faced by the European Union exposes, rather brutally, the inadequacy of its governance - or, more precisely, the absence of government. Peer review, codes of conduct, gentlemen’s agreements, intergovernmental pacts, ‘open methods of coordination’ are simply not up to the task of governing our large, complex and strangely fragile Union in difficult times. Despite improvements rendered by Lisbon, the EU treaties are still more about what the institutions cannot do and too little about establishing a durable capacity to act rationally and effectively. Executive authority is so dispersed between Commission and Council (in several guises) that nobody can really be said to be in charge. Temporising and procrastination – doing too little too late - are too often the order of the day. Many preach vaguely the virtues of ‘reform’, but the Union has slumped into a conservative depression.
Nowhere is this failure more evident than in the battered jewel of economic and monetary union. So the publication by the European Policy Centre of the first draft treaty of the eurozone is greatly to be welcomed. It is hoped that such a provocation will accelerate the follow-up of the Five Presidents’ Report.
The Frankfurt Protocol concentrates executive power in the European Commission, which is enabled to move from the over-centralised coordination of national economic policies towards the formulation and implementation of a common economic policy combining all necessary fiscal, financial, monetary and macro-economic instruments. Consonant with the treatment of the eurozone as a single economic entity, it is the Commission and not the Council that will represent the eurozone at the IMF.
Checks and balances on the reformed Commission are provided by new powers for both the European Parliament and the Eurogroup (which becomes a proper Council formation). The Commission gets a Treasury Secretary and a treasure in the form of a fiscal capacity for the eurozone of a size more or less equal to that of the EU budget. Only MEPs from eurozone states will get to vote on fiscal legislation, and that right will include decisions on revenue as well as expenditure. In an improvement to the troika exercise, and in the context of a more formal European semester, relevant national parliaments will have the right of redress when excessive deficit procedures kick in.
The Protocol allows the banking union to be completed. The European Central Bank becomes the lender of last resort and has wider powers of supervision over the whole of the financial sector.
The rights of non-euro states are respected. A new emergency brake (but short of a veto) – otherwise known as the Brexit clause – will allow the suspension of eurozone legislative procedures where the operation of the internal market is put at risk. There is also provision for a state to retire from the euro – but not to be expelled.
While the shift in the inter-institutional balance is deliberate, the Protocol does not pre-empt the direction of future economic policy. It establishes merely a legitimate constitutional framework inside which the schools of both Keynes and Hayek could thrive. It will surely serve to oblige Paris and Berlin to reach a more sophisticated consensus on the basic nature of EMU than they have managed so far. The result will be less prohibitive than Maastricht, less prescriptive than the fiscal compact treaty but generally more permissive than Lisbon. Naturally, the proposed system allows for a gradual and progressive mutualisation of sovereign debt and the issuance of euro bonds.
The new eurozone treaty is intended to become an integral part of the EU treaties and not, like the fiscal compact or ESM treaties, an intergovernmental substitute for them. Its drafting will allow for a review of the crisis-management measures enacted in a hurry after 2008, and the incorporation of certain of their features, such as ‘reverse QMV’, in primary law. As such, the Frankfurt Protocol will have to be agreed and ratified by all member states. Those whose currency is not yet the euro but who recognise, like David Cameron, the ‘remorseless logic’ of deeper fiscal integration should have no basic problem in accepting it. Indeed, those British who wish the Channel were wider might even welcome its promulgation. [...]
Protocol of Frankfurt
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