The economics of European integration


Federal future of Europe or what?

A discussion about the future course of Europe and the EU often turns around federalism. This is an often misinterpreted and misunderstood concept. Federalism for Germany means a rational division of powers among different levels of government. This is a structure in which federal entities are not absorbed into a centralised state, but keep their autonomy, while competences handed to the central authority are clearly delimited.89 For the English, federalism means just the opposite: a country gives up its autonomy to a single central power (a super-state). In these conditions it is hard for the countries to understand each other.90 Within the debate about the future of the EU one may distinguish two broad lines of argument:

Federalists stand for a single foreign policy; tax harmonisation; more EU power over national budgets; an elected EU president; a single EU constitution that replaces all existing EU treaties; and a preference for the ‘community method’ in decision making. Sovereignty defenders (minimalists, non-federalists or Eurosceptics) argue in favour of a national foreign policy; more national freedom to run state budgets; national governments to appoint the president of the Council of Ministers; a non-political European Commission; more powers to national parliaments to supervise and control the EU; and no more powers to the European Parliament. Article 308 of the Treaty of Rome, which allows the possibility of allocating new powers to the EU, should be deleted.

While Britain would like to see the development of the EU along its preferred lines of common law and informal unwritten constitution, countries that tilt towards a federal EU have different motives for such a concept. Germany would like to see a federal model as a way to soothe the sleeping demons. Germany knows full well that if it wanted to do something alone, it would immediately face an anti-German coalition. Therefore, Germany still needs France in the project. France would like to use the federal model to ‘control’ its German neighbour; Italy would like to use it as a way out of its knotty political system; Spain may be in favour of federalism in order to modernise and gain respectability; while small countries see a federal model as a means to curb the might of big countries and the return of the type of politics that existed between the two world wars, when their fate was decided in London, Paris or Munich. No country, however, sees the EU primarily as a means to sponsor a liberal type of citizenship.

Origin, evolution and prospects


According to the principles set by Denis de Rougemont at the Montreux Congress (1947) to federate means to unite heterogeneous elements, but without any organisational hegemony. The goal of federation is to create and maintain a communication set-up and to sustain uniqueness and individual qualities of each minority, region or state.91 It should be done in a spirit of democracy, liberty, free choice and agreement, which would eliminate uniformity and rigidity. What states can do, the federal authority must not do. The federal process is quite slow, but this is the price to be paid for its existence and progress (Sidjanski, 2000, pp. 15–16). Sidjanski later commented:
the federal approach can be seen as an attitude towards others and society, a method and an approach to reality, an outlook and a style of social organization and behaviour. It is not a rigid model to categorize different societies, but a system of structures and adequate processes that rely on basic principles. It is also a dynamic method, which often works by progressive adjustments. (Sidjanski, 2001, p. 3) Federalism appears to be an appropriate counterweight to globalisation and the most appropriate form of social organization, to assemble Europeans into a union that guarantees national, regional and local identities with the necessary interdependence and the affirmation of a European identity. (Sidjanski, 2001, p. 2)

There are no ideal forms of federalism. The organisational structures based on federal principles do not form a hierarchical order as observed in centralised states. The formation of a federation depends on the existing political cultures and institutions, and proceeds to redistribute tasks and authorities in an optimal way according to the capabilities of the constituent units (subsidiarity). The federal model is always open to change, and it should respond to changes in the integration process. There are different functioning federal models, including those in Germany, Switzerland, Russia and the US. However, the diversity in forms and practices of federalism is a serious warning against the reproduction of any one model (Sidjanski, 2001, pp. 5–27).92 The issue is not delineation between national sovereignty and federalism. The EU already has certain federal powers. Sovereignty will always have to be shared between states and the common institutions. The principal constitutional questions for the EU are:

How much power will EU institutions have relative to the EU member countries in order to protect legitimacy and to preserve the efficiency of the government? That is: how centralised should the EU be? How should power be divided among various EU institutions?


The economics of European integration

Both the European Commission and the Council of Ministers are hybrid bodies. The European Commission is half administration and half executive body, while the Council of Ministers is half executive and half legislative institution, which is why many people have problems understanding them. In order to be accepted, prosperous and effective, the EU must be democratically accountable, legitimate, relevant and intelligible, otherwise the EU may become a supranational bureaucracy instead of a supranational democracy. Whenever the EU encountered an important issue or when it tried to shape a certain future event, it called an IGC to propose the course of and means for action. However, over time these conferences might have outlived their usefulness. They also gave the impression that diplomats plot behind the backs of EU citizens. The treaties of Maastricht, Amsterdam, Nice and others were negotiated and agreed upon behind closed doors. The European Council in Nice (2000) triggered a wide-ranging debate about the future of the EU. The same Council decided in Laeken (2001) to convene a European Convention to pave the way for the future reform of the EU structure. Such a wide discourse is crucial as complexity is an exponential, not a proportional, function of the number of EU member countries. This was the first time that citizens could expect a vigorous and extensive debate about the future of the EU from the start of a certain project. For the first time the elected representatives (largely parliamentarians) of 28 countries (EU members and candidates) were brought together under the chairmanship of Valéry Giscard d’Estaing, to discuss and draft a possible constitution for Europe. The convention93 started work in Brussels in March 2002. One task was to suggest an institutional and operational setup for an EU comprising about 30 member countries. Another task was to state the purpose of the EU, so that people could understand its relevance to their well-being and feel more enthusiastic about its activities. The convention sought consensus, not unanimity. It tackled questions such as: who will be the future government of Europe? Who will control that government? Will there be a directly elected president of the EU? How to manage the EU(25) economy when half of its members use the euro, while the other half does not? In any case although the various delegates may have reached agreement, that did not mean that the proposed text of the Draft Constitutional Treaty would be acceptable to the governments of the day. None the less, the proposal would carry certain political weight. Rather than a six-month rotating presidency (perceived as inefficient), the convention proposed the creation of the post of chairman of the European Council with a mandate of two and a half years (renewable for one further term). This person would chair and drive the work of the European Council

Origin, evolution and prospects


(heads of state and/or government), prepare its work agenda and represent the EU abroad. The candidate for this post would come from the ranks of past or serving EU leaders. This new organisational structure may, but not necessarily will, provoke a power struggle between the president of the European Council and the president of the European Commission. As of 2009, the size of the European Commission would be reduced to 15 voting commissioners including its president. Even though these ideas provoked discontent (small countries deem that this system would favour big countries), the strongest argument on the side of the d’Estaing camp is that the opposition did not put forward any viable alternative. The legislative Council of Ministers would vote according to the new formula for a qualified majority from 2009. The Byzantine system of weighted votes agreed in Nice would be replaced by the double majority technique: a law is passed if: (i) a majority of member countries which represent (ii) at least 60 per cent of the EU(25) total population support it. A new post of EU minister of foreign affairs was also proposed, the post to be anchored within both the Commission and the Council. Other existing EU institutions would be largely unchanged. However, as law making is simplified in the Council of Ministers, the European Parliament would gain in importance because of its co-decision and veto power. Even though there is a reference to subsidiarity and proportionality as a check on the power of the EU institutions, the text of the Draft Constitutional Treaty shows that the EU is increasing its intervention and coordination powers not only over the Single European Market and trade, but also on a host of policies which include foreign affairs and security, monetary affairs, agriculture, fisheries, industry, education, employment, social issues, transport, energy, R&D, and even space (Chapter III, §10). The Constitutional Treaty would likely increase the EU law-making activity in several ways. It would expand sole and shared EU competences, it would lower the threshold for the qualified majority decisions and it would enlarge the number of areas subject to qualified majority voting. The convention submitted its Draft Constitutional Treaty to the European Council in Thessaloniki in June 2003. The Council welcomed the draft and called for an IGC to finalise it by the end of 2003. Not everyone was happy about the Draft Constitutional Treaty, and the text was clarified and modified during the Brussels Council in December 2003. Certain countries, including Poland and Spain, wanted to add a reference to the European Christian heritage, while France opposed that because of its desire to pursue multicultural principles. However, the biggest problem and battle related to voting rights in the enlarged EU. If nothing is done about current voting rights, Poland and Spain with a combined population just below Germany’s 82 million, would together have 54 votes compared with


The economics of European integration

Germany’s 29. The Draft Treaty replaced this by a system in which at least 13 (a half ) of the 25 member states which include at least 60 per cent of the EU population have an upper hand. Poland and Spain would have less influence in the proposed system. Even though the EU has a long history of pulling victory from the jaws of defeat, deeply entrenched positions by France and Germany on one side and Poland and Spain on the other made it impossible for the Brussels Council to approve the Draft Constitutional Treaty. The summit and the IGC collapsed on 13 December 2003. From the beginning, the handling and building of the EU(25) caused more trouble than expected. The benevolence of the new members cannot be taken for granted. One can just imagine the complications regarding future negotiations over agriculture or the budget. Just a few days after the Brussels Council, the leaders of Austria, Britain, France, Germany, the Netherlands and Sweden (net contributors to the EU budget) sent a letter to the European Commission’s president, suggesting that future EU expenditure should be pegged at about 1 per cent of EU GDP for the future financial period, 2007–13. The political message was clear. Spain, the biggest recipient of EU funds, and Poland, the biggest new gainer, as ‘bad boys’ were warned not to expect generosity in the future. The consequence may be a slower convergence between rich and less fortunate EU countries. Following the collapse of this Brussels Council, ideas for a two-speed EU resurfaced. France and Germany, together with a select group of likeminded countries, would form the pioneering core (presumably the original six members of the EU), while others would join this group as and when they could. As such, Central and Eastern European countries would have much more in common with one another than with the rest and they could be grouped together. If this happens, it may be much easier for the US to manipulate Europe towards its own ends. However, the EU may use financial bait to reward loyalty to Europe. There are certain political signs that the European elite should perhaps not push the federalist agenda too far at the current political moment as it may meet resistance. The ratification procedure of the Maastricht Treaty did not go smoothly at all. Although all member countries ratified the treaty, in most of them it provoked heated debate. Indeed, the winning majority for the ratification in most countries was very slim.94 A popular and overwhelming support for the Maastricht Treaty and, hence, for monetary union (eurozone) was not obtained. The elite thought that the plan was too complicated to be explained to the man in the street. In Denmark, the first national referendum on the treaty was rejected. In practice that could mean the exclusion of Denmark from the EU.95 After

Origin, evolution and prospects


obtaining opt-outs from the eurozone and foreign and security policies, Denmark held a second referendum and a (slim) majority in favour was obtained. Ireland also held a second referendum on the Treaty of Nice. This may be a sign to the integration enthusiasts to slow down and reflect more carefully before undertaking further grand steps. The ‘minimalists bloc’ (Britain, Austria and the Scandinavian states) may easily block any mounting federalisation and potential creation of a European ‘superstate’. In addition, this stance may easily be bolstered by the ten new member countries which tend to be anti-federalist. This may undercut the new large-scale EU federal intentions, as Poland demonstrated during the final negotiations on the Draft Constitutional Treaty at the end of 2003. Since the future developments of the EU depend on a plethora of volatile multinational political factors, its future is hard to predict. Various ‘dimensions’ of the EU are still vague, including the external, defence and social dimensions. Even the term ‘Union’ is unclear. It may be easier to point to problems in the ongoing development of the EU than to suggest solutions acceptable to everybody. The EU is, indeed, rich in diversity. This should not be very surprising since, for example, even the EU member states themselves have changed. Belgium has transformed itself since the 1970s from a unitary into a federal state. Only the future will tell how that development will end up in Belgium, or in Italy (highly developed northern ‘Padania’), or in Britain (oil-rich Scotland). Hence a federal approach to the future development of the EU according to the principles set by de Rougemont may have the highest potential for success.



The goal for the EU set by the Lisbon Council (2000) is to make the EU ‘the most competitive and dynamic knowledge-based economy in the world’96 by 2010. Fine words and aspirations, no doubt. Unfortunately, this aim produced little more than hot air. In order to provide ‘food for thought’, to contribute to discussions and to assist in the policy making, the European Commission commissioned a report from eight academics. Under the chairmanship of André Sapir, the group produced An Agenda for a Growing Europe (2003). In order to achieve and maintain sustainable growth, the study group recommended among other things that the EU should use its funds more wisely than was the case in the past. The EU should spend about half of its budget on growth-stimulating activities such as research, higher education, infrastructure projects and institution build-