N. 70 July 2017 | The extraordinary opportunity to build a federal Europe

It is once again crucial that a vanguard group of countries takes responsibility, if we are to solve the stalemate blocking the EU's machine. It's in this sense that we intend to propose a concrete project of a Treaty aimed at launching the Union's reform process, in the run-up to the European Council in December.

“Accepting the status quo in Europe means accepting an increasingly bureaucratic Europe that, continuing to function purely mechanically, is no longer capable of showing the citizens where it wants to lead them, or of uniting them […]. Europe was founded on a promise of peace, progress and prosperity. What is needed now is a project that can renew that promise […]. At a certain point, the Treaties will have to be changed, because this Europe is incomplete: the question is not whether these changes are necessary, but when and how”.

These are remarks by the newly elected President of France, Emmanuel Macron. Significantly, he made them during an interview given to a French newspaper and several German ones on July 13, the eve of France’s July 14 national holiday, and also of his first meeting with Trump and a brief but important Franco-German summit. They may be seen, first of all, as confirmation of his intention to keep his promise, made during the presidential electoral campaign, to act, in parallel, in the field of French domestic politics, starting a round of reforms capable of giving the country fresh momentum and competitiveness, and in that of European politics, endeavouring to give Europe the instruments it needs to build the “pieces of collective sovereignty” that are required in areas that can no longer be controlled at national level, or even governed in the interests of the citizens. But, more than anything, his remarks confirm that France, after more than a decade, is ready to turn to the page, recognising that reform of the European Treaties is no longer a taboo topic.

For Europe, this development opens up an extraordinary opportunity, because France’s attitude paves the way for a renewed understanding with Germany, and therefore for a strengthening of the motive power of these two countries, without which it is impossible even to think of launching EU reform.

Primarily, the crucial issue that Merkel and Macron are called upon to resolve, in order to enable Europe to “renew its promise of peace, progress and prosperity”, concerns the nature of the European Union’s institutional system. Basically, are Paris and Berlin ready to start overcoming the intergovernmental system, i.e. ready to ensure that Europe makes the transition (in the areas that are ripe for it) to a federal system? As things currently stand, the EU is founded on the management, through the so-called Community method, of the various competences that relate to the single market; in this context, even though some improvements are needed in order to further “pool”, at Community level, decision-making powers in areas where they are still restricted by the retention of the national power of veto, the approach adopted, resting on the European Commission’s monopoly on legislative initiative and the extension of the European Parliament’s legislative co-decision powers, has already been shown to work. At present, though, the only area managed along almost federal lines is the monetary union, which, however, to be sustainable, still needs to see a further sharing of sovereignty in the areas of economic and budgetary policy. Instead, in these particular areas, as well as in the others most closely bound up with national sovereignty, such as foreign policy and domestic and foreign security policy, the current system is based on the so-called intergovernmental method, in other words, the pursuit, within the European Council and the Council, of unanimous consensus among the governments, which, however, never go any further than setting out forms of cooperation, always trying to protect, as far as possible, their own specific interests. In this system and in these areas, the Commission is politically subordinate to the member states and the European Parliament has no say. It is precisely the sensitivity of the issues in question, which are at the heart of political sovereignty and have the profoundest implications for the citizens’ relationship with their state, that makes the Community method inadequate in these areas; indeed, this hybrid system — it is a system that allows supranational integration in policymaking and areas relevant to the building of the market to be coupled with the maintenance of national political sovereignty (i.e. the power to make the final decision on any sensitive matter) — lacks sufficiently effective decision-making mechanisms and, from the democratic point of view, lacks adequate checks and balances when the policy areas under discussion are ones that touch on a state’s very raison d’être. This explains why these areas need to see a far more radical change, involving the construction of a genuine supranational political power, limited to a few specific areas but accompanied by the power of political initiative, by own resources and by a balanced system of checks and balances that gives the European citizens and member states (in accordance with the federal principle) true power of control.

Precisely because of the paradoxical situation, mentioned earlier, of a federal currency accompanied by strictly national economic and fiscal policies, the eurozone constitutes a setting that is now ripe for this change. The need to complete the monetary union, through the creation of a specific budget and a democratically controlled supranational government, is a subject that has generated reflections and proposals for many years now, essentially ever since the explosion of the economic and financial crisis that exposed the weaknesses of a single currency built without even creating an economic union, and without establishing own resources, which, of course, are crucial in order to dampen asymmetric shocks and stabilise the currency area, promoting convergence. In Europe, there are, of course, numerous areas of “work in progress” that have implications for the single market, or touch on some of the main strategic policies of the member states; the monetary union is certainly not the only stalemate situation waiting to be unblocked. What it is, however, is the only one in which what is at stake is a decisive and substantial institutional advance; it is the only one in which the EU is faced with a need for “completion”, given that this is an area in which sovereignty is already shared and a federal institution has already been created (the European Central Bank), but in which intergovernmental management of economic and fiscal policies is causing harm and threatening the European Union’s very survival. In all the other areas currently stoking European debate, areas such as defence, internal security, and the management of migratory flows, the EU starts out from a much less advanced position (characterised by more or less intense levels of cooperation between member states and national governments) and harbours far more modest ambitions, which, at best, include boosting cooperation (or starting it, in the case of defence) or giving greater powers to the Commission. But in none of these areas does the debate concern a radical transformation of power within the EU, whereas this is precisely what is at stake in the eurozone.

For this reason, speaking on 13 July, Macron got straight to the point: “I want the eurozone to be more coherent and more convergent. Right now, it is not working because it has fuelled divergences. Those that were already indebted have become even more indebted. Those that were more competitive now find themselves even more competitive […]. This is an unhealthy situation, because it is untenable […].It is not a question of pooling the debts of the past, but rather of combining convergence and solidarity within the European Union and the euro area, so as to create more powerful mechanisms of solidarity for the future. This is the key if we are to have a Europe built to last over time. All this requires a budget, a government to decide how this budget is allocated, and democratic control, which until now has been lacking.”

The French president’s brief meeting with Chancellor Merkel on July 14 seems to confirm this analysis. The fact that reform of the monetary union is such a crucial issue means that it is also the trickiest; and this is clearly why the two leaders agreed to wait until after the German elections in order to tackle it. It is no secret that in Germany there is some quite bitter opposition to this solution, with some forces fearful that a further sharing of sovereignty with debtor countries, in which they have no confidence, can only lead to a transfer union, and make it impossible to keep the moral hazard problem under control. Yet even Merkel admits (as she did in a speech given in Zingst on July 15, reported by Reuters) that she is now convinced that Europe needs to be stronger and “open to the proposal of a eurozone finance minister who would oversee a pooled budget for investments and transfers, intended to help member states cushion economic shocks.”

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With Paris and Berlin now proposing to relaunch the European process, the points on which to try and define the agreement would seem to have been found. And yet there nevertheless remains a high risk that, ultimately, a pseudo-solution will prevail, with  those involved seeking, once again, to avoid building a genuine European government, opting instead to shore up the present system of rules, i.e. the intergovernmental method, and the institutional values it embodies. The fact is that a large section of Germany’s political and ruling class is strongly inclined in this direction, and this, together with France’s traditional preference for the intergovernmental approach, could have the effect of funnelling the current ferment and flow of expectations over Europe back into the old mould.

Were this to happen, it would certainly not be the first time. As the European integration process has unfolded, we have become used to witnessing the contortions of governments determined not to take the most logical course, that of federal political union. The Maastricht Treaty itself, which embodied the decision to deal solely with monetary union, and not political or economic union, is a case in point; another one, still with reference to Maastricht, is the creation of the two pillars, based on intergovernmental cooperation, devoted to common foreign and security policy and  justice and home affairs, precisely at a time when these strategic matters needed, rather, to be “Europeanised” in some way. Basically, in the Treaty, a formula was found that mimicked a political transition and thus created meaningless European entities, while actually leaving these crucial areas entirely in the hands of the states.

Therefore, the risk that those involved will try to agree to create an intergovernmental government of the eurozone is a very real one, and it must not be underestimated. Two decisive elements will be needed in order to avert it: first of all, the emergence of concrete support for the creation of a true eurozone budget, fed with own resources and flanked by a European fiscal power (this will undoubtedly require a reform of the Treaties, but it must be envisaged from the outset, and recognised as an objective to be pursued), and second, the attribution to the European Parliament of legislative co-decision power also in this area (this, too, will demand a reform of the Treaties, but it will need to feature, from the outset, as part of the envisaged solution). What is needed is the creation of an effective European power, supranational and non-intergovernmental in nature, and also of new institutional balances that put an end to the intergovernmental management of the economic union and pave the way for completion of the monetary union through the building of a federal-based political union. Without this, improvements to the governance of the eurozone will never be enough either to make the euro area “more coherent and more convergent” or to start the reform of the European Union that is desperately needed in order to turn it into a global power equipped to rise to the challenges of the twenty-first century.

For the other EU countries, all this should serve as both a wake-up call and a stimulus, and certainly as a reminder of the importance of striving to contribute effectively to the reaching of a eurozone agreement that can change the existing system and give rise to a new institutional equilibrium that allows rules (which set out the necessary parameters but are not enough on their own) to be combined with politics, understood as a means of “combining convergence and solidarity”. In particular, it should serve as a wake-up call for Italy, whose politicians seem to be struggling more than others to adopt a clear position in this regard: in truth, anyone who is pro-European has no alternative but to fight for federal political union. Attempting to take shortcuts by proposing rearguard battles designed to turn the rulebook back 25 years (missing the point that a return to Maastricht would merely be a return to the errors for which we are now paying such a high price) can only be damaging. The only thing that matters now is to create the federation. Europeans have no reason to fear facing up to reality and the opportunity that has now opened up; but they do need to find the strength to engage in the right political battle.


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