A New Deal for Europe?

by Shane Fitzgerald

We’ve previously covered the work of the European Parliament’s Special Committee on the Financial, Economic and Social Crisis (CRIS Committee) on this blog and indeed the Chairman of the Committee, Dr Wolf Klinzvisited the IIEA in October to discuss its work.

Yesterday its Rapporteur, Pervenche Beres, presented her final report to the Parliament. A resolution backing the report was adopted with 434 votes in favour, 128 against and 33 abstentions.

The resolution is non-legislative but nonetheless is a strong demonstration of the European Parliament’s hopes for radical action to boost European competitiveness, employment, innovation and growth in the years ahead.

The report asserts that Europe must “develop a much closer coordination of fiscal policies and, where appropriate, a common one with a sufficient EU budget funded partly through own resources.”

On the EU’s rescue programmes and mechanisms, it argues that Member States’ growth perspectives should be taken into account when determining the interest rates attached to emergency loans. It also stresses that parent banks bear a share of responsibility for risky lending by their subsidiaries and that therefore assistance to indebted countries serves not only those countries’ interests but also the interests of the big banks’ home states. That’s an argument heard with increasing frequency in struggling peripheral nations but it has not until now held much sway in the policymaking citadels of Brussels and Frankfurt.

The report calls on the Commission to carry out an investigation into a future system of Eurobonds, arguing that pooling a certain amount of EU member states’ debt would offer an alternative to the US dollar bond market, and “could foster integration of the European sovereign debt market, lower borrowing costs, increase liquidity, budgetary discipline and compliance with the Stability and Growth Pact (SGP), promote coordinated structural reforms, and make capital markets more stable, which will foster the idea of the euro as a global ‘safe haven’”.

It further argues that the European Stability Mechanism which is due to come into place in 2013 should eventually be replaced by a European Debt Agency that would issue these bonds.

There is plenty more in the report, which covers everything from youth unemployment, social cohesion and climate change to energy policy, financial regulation and reform of the international monetary system. Proposals include a financial transaction tax, a greatly expanded EU budget that would guide investment in cross-border infrastructure such as energy and transport projects, and the development of a European Treasury.

This is a hugely ambitious programme. Many of its elements will run into immediate and immovable opposition from member states in the European Council. A reminder of the fractious relationship between the Council and Parliament came during a debate on the report in Strasbourg yesterday when Olli Rehn, EU Commissioner for Economic and Monetary Affairs, reminded MEPs that agreement had still not been reached on a package of legislation that is supposed to form the centrepiece of the EU’s crisis response in the area of economic governance. Agreement on this, he argued, was “badly needed to show that Europe has the capacity to act and thus restore confidence in our economic prospects”, yet negotiations between the two institutions remain at a standstill. “The first concrete reaction to the final report of the CRIS committee, as prepared by Mme Berès, must be the quickest possible adoption of the package,” he insisted. “It is essential to restore confidence in the European project.”

Beres’ report argues that the EU is at a crossroads: “either the Member States decide to join forces in deepening integration or, owing to stagnation at the decision-making level and divergences at the economic level, the EU could drift apart”. That may be true, but faced with tremendous fiscal, political and demographic challenges at home, member states’ governments will have to be met at least half-way by the Brussels institutions. The great leap forward in integration that MEPs desire might well be desirable, but many of the proposals they have made will prove to be politically impossible.

This article was first published by the Institute of International and European Affairs. Access the original here.