The intergovernmental resurgence

The diminishing role of the European Union institutions has brought national governments back to centre-stage.

Quite when the influence of the European Union’s institutions based in Brussels went into decline is a hotly debated question. With the benefit of hindsight, it is possible to extend the tipping point further back in time. Perhaps it came with the enlargement of the Union to 27 diverse member states? Was it a spill-over effect of the launch of the single currency? Or was it at the end of Jacques Delors’s presidency of the European Commission? 

What is certain in any case is that the transatlantic financial crisis, which began in August 2007 and escalated dramatically in September 2008 after the bankruptcy of Lehman Brothers, an investment bank, has accelerated the trend. The EU’s national governments have gained influence at the expense of the Brussels-based institutions.

It was essentially an intergovernmental institution, a big-state led institution, the European Central Bank and the European System of Central Banks (ECB), which responded first (and bravely) to the financial market collapse of 2007.

Since then, whether you take as your yardstick the high-profile role that national governments played in co-ordinating their economic stimulus packages or the prominence of European leaders in the international crisis-containment meetings of the G20, it has been national governments, not the Commission, that have been centre-stage.

So when next week (7 September) EU finance ministers examine, at their special Ecofin meeting, the progress of the taskforce on economic governance led by Herman van Rompuy, the wily and increasingly influential president of the European Council, they will know that the tide of history is shifting towards an increasingly inter-governmental EU.

“A realistic [economic] reform agenda must ditch long-held federalist dreams,” Jean Pisani-Ferry, director of Bruegel, a Brussels think-tank, wrote in a recent article, “Eurozone governance: what went wrong and how to repair it”, published on VoxEU.com. Barbara Boettcher, a senior economist at Deutsche Bank Research, adds: “There appears to be a strengthening trend towards inter-governmentalism in the EU.”

Pan-EU supervisor

The proposed pan-EU financial-market supervisor, the European Systemic Risk Board (ESRB), which is supposed to exercise macro-prudential oversight, will be attached to the ECB. When the dust settles, it will still be nation states that will hold sway in the reformed bank and financial-market oversight agencies within the European System of Financial Supervisors (ESFS).

The EU’s response to the Greek sovereign-debt crisis earlier this year, and in its aftermath, the creation of a €440 billion European Financial Stability Facility (EFSF) by eurozone governments, also have a distinctly intergovernmental quality.

This should not be surprising, given that it is individual eurozone governments and (especially German and French) national taxpayers who are standing behind the EFSF and, individually, have vetoes on key decisions.

Moreover, it is hard to read the ECB’s (surprisingly) public contribution to the Van Rompuy taskforce’s deliberations without noting criticisms of the Commission (as well as the Eurogroup and Ecofin Council). They were “not…sufficiently stringent in applying the EU fiscal rules” is one of the ECB’s pot-shots at Brussels.

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With the single currency and the single market at risk, the need to move the process of reforming economic governance forward is pressing and is another reason for intergovern-mentalism. It must be unencumbered by an ill-disciplined and frequently meddlesome European Parliament. Nobody needs reminding either that reforms have to be put in place without straying into territory that might require a new EU treaty.

Most reforms under consideration are within the competence of national governments, so this naturally gives member states a bigger role in the process.

Foreign policy retreat

So too does the fact that, trade policy apart, Brussels is in retreat in the field of foreign policy. The big member states are determined, for example, to take the lead in talking to China, India and Russia, whatever the ambitions of Catherine Ashton, the foreign policy chief. Russia and China have long since figured out that the US’s divide-and-rule approach of talking primarily to EU national governments is best for them too.

But there are already diplomatic tensions within the EU as the big member states strengthen their grip on key policy areas. Germany is perhaps a little too visible for its own good as the EU’s rainmaker, with its fast recovering economy, its leadership – through the former German government official Klaus Regling – of the new EFSF, and the probable succession of Bundesbank President Axel Weber to the presidency of the ECB, not to mention the influence that the country wields in Van Rompuy’s cabinet.

France must be uneasy. But then, along with the UK, it still has a trump card to play at Europe’s high table, its military prowess.

The risks of strengthened national interests

There are risks associated with a weakening of the Brussels’s institutions, observes Boettcher. Could this trend strengthen national vested interests and endanger the supposedly level playing-field of the single market? Will smaller members become difficult when they feel excluded? Will a counterweight of regional, perhaps Nordic, caucuses start trying to play a bigger role? And does the trend to intergovernmentalism strengthen or weaken the EU’s voice in world affairs?

Without far-reaching reforms of its economic and financial governance the Union faces an uncertain future. The current governance structures have been shown to be not up to the job. They are not capable of sustaining the single currency or contributing to an improvement in either economic performance or cohesion. And this is at a time when the Union is battered by international financial markets and bereft of the unifying idealism that surrounded its birth.

Stewart Fleming is a freelance journalist based in London.