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28 April 2020

Spinelli Group: Duff - A Federal Europe: the way out of the crisis

A way to break the deadlock over the MFF: restructuring the EU budget into federal and confederal parts. Eurobonds could then be launched without changing the treaty or breakingthe balanced budget rule, and at no extra cost to national treasuries.

From public health to constitutional crisis

The European Union is once again in deadlock. The coronavirus pandemic has spawned a new
financial crisis. While there was certain to be another financial shock after the crash of 2008, we
were unsure of its timing, provenance and symmetry. Nor could we predict the mega scale of the
crisis: the collapse of supply and demand, the closure of much of Europe’s business for at least the
first half of 2020, and rapidly rising unemployment which could lead to a deep depression.
The European Union is not sufficiently robust to face this crisis with equanimity. The unification
project, now 70 years old, is still far from complete. The EU is an integration experiment conducted
in real time. There is no precedent for a number of nation-states to engage voluntarily in building a
federal union. The emergence of previous federations, notably the USA, postulate analogies but
offer no clear roadmap for contemporary Europe.

So the Union today is a hybrid, part federal and part confederal. The federal ambition – “ever closer
union” – is not dead, but it no longer commands the allegiance of all its member states or political
parties.1 By way of successive treaty changes and some path-finding jurisprudence of the European
Court of Justice, the Union has built up its supranational authority. But most of the EU institutions
are still run in an intergovernmental way, by traditional diplomatic methods. Decision making in a
confederate Europe is bound to be slow and fractious, leaving the potential of the Union as a whole
unfulfilled, and its governance weak.

The spread of the coronavirus pitches the EU into its next constitutional crisis. For the Union is
unfinished business, a fragile polity under stress. Debate about “the future of Europe” is uncertain.
No settled consensus has formed around the final size and shape of the Union. Indeed, the United
Kingdom, one of its major member states, has just seceded. Eurosceptic leaders in Hungary and
Poland challenge the premise of the rule of law on which the Union’s claim to legitimacy rests.

The creation of the internal market and single currency are great achievements, but they risk
being undermined by the failure of EU leaders to pursue integration to its logical conclusion. The
European Central Bank (ECB) has to manage its common monetary policy without the aid of a
common fiscal policy run by the Commission. The Bank is expected to stabilise the banking system of
the eurozone without having proper oversight of the financial services industry. The fact that the EU
has no central fiscal policy to complement the national budgetary policies of euro members has led
to much discussion about the creation of a fiscal capacity unique to the eurozone. Nothing has been
decided, however, leaving the ECB solely responsible for risk-sharing in the eurozone.

A common fiscal policy, of course, would require the coming into being of a discernibly federal
government of the Union. The Commission is designed to act as a proto-government, but it has to share its executive authority in many areas with the Council. Although the Council itself, and its
senior partner the European Council, can vote to take decisions, they usually prefer the longer and
more difficult route of acting by consensus. In any case, the unanimity rule is still imposed for all
critical decisions of a constitutional nature.

In other fields, too, the EU house is only half-built. The elaborate ‘external action service’ has no
serious common foreign policy, still less a common defence policy or integrated military forces. The
European Parliament does its best to bring democratic accountability to the Union but it is not
elected on a transnational basis and does not enjoy federal political parties to connect it with the
electorate. There are still too many restrictions on full legislative power for the European
Parliament, not least with regard to budgetary matters. National parliaments, meanwhile, cannot act
federally even if they wished to do so. Parliamentary influence on the shaping of the general interest
of the Union remains weak.

The Union’s latest Treaty of Lisbon (2007) includes provisions that would streamline decision-making
in a democratic way, but these lie unused.3 Nowhere are the internal contradictions of the EU’s
structure more exposed than in the regular round of argument over spending money. Every seven
years after debilitating negotiations on the Multi-Annual Financial Framework (MFF), which must be
decided by unanimity, we sigh and say “never again”.4 But reform of the system never takes place.
Seven years later we are back where we started, with squabbling between the richer and poorer
states, frayed tempers and, eventually, sub-optimal results....


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© Andrew Duff

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