Mark Dawson: The conditions for another rupture of the eurozone are there

Police during Blockupy protests in Frankfurt. [Montecruz Foto/Flickr]

The sense of urgency surrounding the institutional reform of the eurozone has passed. This is dangerous, says Professor Mark Dawson, because of its instutional flaws.

Mark Dawson is Professor of European law and governance at the Hertie School of Governance in Berlin. Dawson is the co-author of the Hertie School’s 2015 Governance Report, which focuses on lessons learned from the euro crisis.

He spoke to EURACTIV Germany’s Chief Editor, Daniel Tost.

A recent op-ed of yours is entitled Why Europeans Are Trying to Burn Down Their Central Bank. What’s behind this?

Obviously not all Europeans are trying to burn down the European Central Bank. But one of the interesting issues is all the attention on the Central Bank. People are knowledgeable now of the Central Bank as an institution, and have more or less realised that the most important institution in integration is also the least accountable.

This is something really problematic. The question is: if you as an individual and your state are affected by EU economic policies, what can you do about it? In any kind of democratic polity, there are ways in which people can try to change the policies that effect their lives. With the European Central Bank, they see that this is really impossible. So how do you change the decisions of the Central Bank, given that it is an institution that’s intentionally insulated from any political influence? That is part of its design. Because there are no legitimate ways of expressing your voice, your voice is being expressed in illegitimate ways. Through protests, violence, through extremist and populist anti-EU parties.

But isn’t the rise of more radical or populist political forces a form of legitimate expression?

That is true. But what practical impact did Greece’s election of Syriza have on Greece’s situation? We are in this very unsatisfying situation where the Greek government talks of holding another snap election. But what difference would that make? You can have a big electoral mandate at the national level, but authority isn’t coming from a national level. It’s increasingly coming from an EU level.

The EU level is determining the shape of national budgets. That’s not uniform between European states, and it’s a pressure being felt much more in southern than northern states. But while you have these protest parties in these states, ultimately they are protest parties because they don’t really have the means to move from protest to actually changing policies. This is a problem.

Do you see any reaction on an EU level to this?

We saw that a little bit. There was something quite optimistic in the European election campaign. You did have a big debate about austerity, it was being publicised. People in Europe realised this is a debate that spills across borders. On the other hand, it’s quite ironic that you have a European Parliament election that is about austerity, but ultimately the European Parliament doesn’t have any say in austerity politics. It’s not the Parliament that can frame bailout programs or conditionality. It’s not the Parliament that can change the direction of EU fiscal policy.

So there is a debate being held at a European level, but it’s being held at an institution that doesn’t have the appropriate levers to influence the direction of EU policy. That’s something that could change.

Is the European Commission doing anything to address the issue?

What we’ve seen during the crisis is that the European Commission is more constrained as a policy entrepreneur that it has been in the past. There was the possibility that the ‘Spitzenkandidaten’ process could have liberated the Commission, but the institutional reality is that the Commission is part of a dual executive now and it shares its executive prerogative with the European Council. That is particularly the case when we are dealing with fiscal and economic policy. The ambiguity of that is an illustration of the limited room for maneuver that the Juncker Commission actually has.

In this year’s Governance Report, you write that while previous EU decision-making tended to be agreed upon either through the supranational ‘community method’ or through intergovernmental agreements, economic governance after the onset of the crisis has tended to blend these two decision-making types in novel ways. You introduce the idea of a ‘coordinative method’ of EU decision-making as an ideal type within which to understand these changes. Is this something you see being discussed on a national level?

I don’t think so. In a way, it is the job of academics to encourage policy makers to reflect on more long-term changes they haven’t really thought about. Some countries are more aware of these developments than others. But some countries have more urgent tasks on their minds.

What is pretty clear is that smaller member states are in danger of marginalisation after the crisis. One interesting aspect is that previously in the Council, you had an overrepresentation of small member states in voting. So Luxembourg has proportionally more votes than Germany. In EU mechanisms like in the bailout mechanism, you don’t have that. You have voting according to capital contributions. So you have a kind of systemic undercounting of smaller member states.

During the tumult of the euro crisis, they accepted these developments, but in the long-term, they are actually weakened by these things. I think they haven’t really reflected on that. Some states probably have. An example for this is the marginalisation of non-eurozone member states, which are potentially being excluded from EU decision making. Think about the distinction between the Eurogroup and the Ecofin. That is threatening to the UK because the Ecofin is going to be more and more dominated by the eurozone finance ministers. It’s interesting that the UK has been trying to argue for certain kinds of safeguards, such as in banking regulation. They have been more attune to this problem. Smaller member states will probably only later on realise what impacts these changes will have.

How does Germany’s role fit into the ‘coordinative method’?

Part of the idea of the coordinative method is the idea that you move away from the sovereign equality of states. There was a strong idea even within the Community method, which is highly supranationalised, that states have an equal duty to implement EU law. You have to follow the same rules whether you are the UK, Germany or Slovakia. I think we are moving away from that model. We have different rules for eurozone states and non-eurozone states. But we also have different rules within the eurozone. So if you are Germany, you don’t have a sovereignty loss because of the euro crisis. You are not subject to constant Commission surveillance, you are not losing sovereignty over your banks. In other eurozone states you have a very extensive sovereignty loss. There is much more Commission supervision of budgets, much more ECB supervision of the private sector. I don’t want to say this is just Germany versus the rest. But you definitely have a situation where the level of sovereignty, the level of autonomy you have in the EU is increasingly conditioned on your fiscal health. If you are a wealthy member state, you are in control. If you are not a wealthy member state, you have all of these additional obligations.

If you are wealthier, you are more autonomous?

Not wealthier, but have a positive budgetary condition. That is the idea of the new construction of the eurozone. If you are not running a deficit for example, you have more sovereignty. Some would say that is how the eurozone should be constructed. From a legal perspective this is a problematic idea, because the legal construction of the EU is based on the fact that every member state is sovereign (at least over ‘core’ areas of national policy).

Recently, your colleague Henrik Enderlein argued that monetary union in its current form won’t be able to survive, and that in ten years we will be looking back at this time and asking ourselves why no one took action. Why is action urgent right now?

One of the dangers is that there is complacency. From 2010 up until Mario Draghi’s interventions, there was a real sense of urgency surrounding institutional reform to the eurozone. There is a sense that this time has past and the eye of the public has moved on to other things. Security for example has gone up the policy agenda. That is dangerous because a lot of the structural flaws in the construction of the eurozone as well as all the institutional legitimacy problems are still there. The conditions for another rupture are there but at the same time the political imperative to do something about it has been lost. That’s what makes now an important time to reflect on these things. There is also a sense of waiting. We have a UK general election coming up. We have the possibility of Greek elections coming up. But that is always the case in integration: there is always a reason to wait. But that’s just passing the buck on to a future generation.

Wouldn’t Greece leaving the eurozone fuel such a sense of urgency?

It probably would. One of the ways of looking at the Greek crisis is that the reason that there was so much attention on Greece was not because of Greece per se, but the possibility of contagion to other eurozone member states. The fear of that is probably less now than a few years ago. Partly because the fiscal conditions of Spain or Italy are better than they were. Partly because Ireland went through an adjustment program and came out of it. If you’re in Greece, this is really urgent. But for policy makers in the rest of Europe, their primary concern is not necessarily Greece. It’s the systemic stability of the eurozone. There is less of an urgency about that. But that is probably more of a perception than an underlying reality. Nonetheless, that perception is driving political development.

Enderlein also said that he wished we had a process similar to Commission President Jacques Delors’ plan for the establishment of an EMU over three phases today, in which we ask what we need as a long-term target. Do you see any such discussion going on?

One of the things talked about in the Governance Report is the idea of ‘exploratory governance’. In a way that is oppositional to the idea of a grand strategy for the eurozone. Eurozone policy makers are operating in a situation where there are not a lot of precedents for the existing construction of the eurozone. As a result of that their measures have tended to be rather ad-hoc. As specific problems, they have tried to address them in a way that limits political resistance to the actions they have taken. That’s probably also how the eurozone is going to continue, at least for the foreseeable future. We saw that in the case of the banking union as well. While there was an idea that more regulation of the banking union was needed, the actual construction was a compromise effort between those who wanted a very strong supranational regulator and those who wanted national control over funding. At least in the short-term, that is likely to be the way forward.

People like David Cameron could benefit from this grand strategic thinking. He wants to renegotiate Britain’s relationship with the EU. That would probably give him the opportunity to do that. But I don’t see what the incentives would be for the other member states to go along with that. They know from past experience how unwieldy treaty change is. That this is kind of opening a Pandora’s box, that there are a lot of possibilities for the ratification process to fail on the national level.

What we also saw from the crisis is that we have this new possibility of changing the structure of the EU through international treaties such as the Fiscal Compact or the ESM treaty. That would be an example of exploratory governance. It’s more likely that future changes to EU policy go down that road – making small changes around the edges that are not agreed upon by all member states – than going down the traditional route, where the Commission comes up with a grand proposal, you have a treaty amendment and these sorts of things.

Daniela Schwarzer, from the German Institute for International and Security Affairs (SWP), sees the European debate becoming more controversial in Germany, and the AfD increasingly influencing this debate. Do you see this possibility as well?

Being from the UK and knowing a bit about populist parties in other parts of Europe, I see more of a natural limit on the AfD’s growth in Germany than I would on anti-European parties in other member states. Compar3 the policy positions of the AfD with relatively mainstream conservative movements in Poland or the UK: If Martians were to come to earth and compare the conservative manifesto of the Law and Justice party in Poland or the UK Conservatives with the AfD, they wouldn’t necessarily conclude that the AfD was the anti-European party.

One has to distinguish the German case from other European states. The anti-European movement in Germany is less radical, less existential than in other European countries. But what is both positive and dangerous is that the mainstream parties have more homogeneity in terms of their positions on Europe. So you increasingly see a sense in which one’s general openness to the integration project becomes a faultline within domestic politics. The mainstream parties sit on one side of that fault line and you have populist parties sitting on the other side.

Look at the Grand Coalition in Germany. It’s not that clear to me how the creation of the Grand Coalition has really affected Germany’s stance on EU affairs. It’s not apparent that there is a big ideological cleavage within the mainstream parties over European politics. The same goes for France. Did we see a huge shift in French political discourse from Sarkozy to Hollande? Hollande was in favor of more pro-growth policies, but in a way that would have probably been in the interest of Sarkozy too because it’s in the national interest.

I see divergence in terms of having more protest and anti-EU parties. But this is produced as an effect of the more pro-European parties that still form governments in most European states.

On the topic of accountability, you write that the ‘coordinative method’ continues to rely on output legitimacy, particularly in delivering a sustainable and balanced European economy. How can input legitimacy be achieved?

One has to build on what is already there. Things have significantly changed in the last ten years. One positive effect of the euro crisis is that more and more Europeans are having a common discussion about one topic, which is the future of the Euro and the future of austerity politics and whether that is a good economic model for Europe or not. You are having the same discussion in lots of European states. What’s important is that European politics have to channel that discussion. It has to be clear that that discussion not only can take place on a European level but that it can actually change the types of policies that the EU pursues and practices.

When we had the Spitzenkandidaten process in the European Parliament elections, it was a step to try and do that. There are lot of flaws with that process, perhaps we didn’t get the candidates we might have wanted, perhaps the process didn’t have the resonance in all the member states it could have had. But this is one move that tries to politicise the integration process and recognise that we are in a different stage in integration. We are in a stage of integration where it is not enough for technocratic actors to manage the process in a benevolent way. We have real political decisions about how the EU is going to evolve. The EU is engaged in really salient areas of policy now. That requires democratic input. This is a way of gradually trying to achieve that.

Are we seeing such input in the discussions surrounding the TTIP?

The TTIP has been something positive, in the sense that it has politicised a lot of young voters. It’s created a lot of social movements across a lot of European states. There are political parties on the European level like the Greens that have tried to take advantage of that. In so far as this has politicised something across member states, and encourages citizens, to realise that they have to coalesce around common issues, whether they are in France, Greece or Germany, this is a way EU politics are becoming democratised.

You suggest that EU law and policy-making should not shy away from addressing the conflicts generated by the crisis, but should instead provide fora for contestation among EU citizens, political actors, and society. Do you see any of that currently going on?

Think about the example of anti-austerity parties. You had the election of Syriza in Greece and you have this large rally of Podemos in Spain. These parties see themselves as part of the common European movement, whether one agrees with their political agenda or not. That is a new phenomenon in which you have what otherwise would have been disjointed national discussions that are now being framed at a European level. European politics has to find a way of taking advantage of that. Maybe it’s not doing that in the best way possible. Maybe it’s not connecting with grassroots movements in the best way possible. But it has to have an institutional structure that allows for that. You have a European Parliament that can’t actually change the conditions of programs with Portugal or with Greece. Why should you as Podemos or Syriza engage with European politics if your engagement doesn’t actually lead anywhere or have the capacity to change anything? It’s kind of a chicken and egg problem but unless we have an open and politicised institutional structure then we don’t have any way to channel the energies of grassroots democracy. This connection between institutions and whats happening on the grassroots level is important.

Obviously economic governance is important, but that’s not the only part of EU politics. There are a whole host of areas of EU policy where the European Parliament really does matter. And if you’re able to influence the European Parliament, then things can change. A lot of parliamentarians are doing really important work, putting pressure on the institutions, on the member states. There are many areas of EU politics where there is a connection between grassroots movements and the EU institutions, areas in which the institutions are changing the direction of EU policy through democratic action. But that model is not being observed in the crucial area of fiscal and budgetary policy.

Do we need treaty change?

It would be good to have certain treaty changes, in the sense that what we have now is an emergency situation. Having things like the Fiscal Compact and the ESM outside of the normal treaties comes with a lot of disadvantages. There are a lot of unanswered questions about whether it’s legitimate to use the EU institutions in non EU contexts. Treaty change could solve some of these ambiguities. The default assumption of the Governance Report is, however, what we can do without extensive treaty change. We also talk about institutional reforms that wouldn’t conflict with the existing treaty rules.

How likely are such changes to come about?

It’s difficult. That’s why its incumbent upon the media and academics to show why these things are necessary, why they are urgent. Some things are moving already in the direction of some of the recommendations that we made. For example to reengage national parliaments in the management of the eurozone. In the Fiscal Compact, there was a provision that allowed for an interparliamentary conference on budgetary policy. That conference has already met several times but it has been a very slow process. It hasn’t adopted rule of procedure, its timetable isn’t synchronised with the European Semester. There are a lot of problems with the way it operates but we have a structure in place that could deliver greater parliamentary engagement. A lot of the recommendations we make were on that track, but we have to move a lot further.

We have a lot of books, policy briefs and contributions about how to complete the monetary union from economists. But what we don’t have is a lot of contributions that combine different disciplinary perspectives. People who are trying to look both at what is functionally necessary for the eurozone, but people who are also looking at the institutions and questions of legitimacy and rule of law. That’s what the Governance Report is trying to do. We try to give a perspective from an economist, but also from a political scientist, and lawyers, as well. It’s linked to the mission of the Hertie School to have these different disciplinary perspectives brought together. Bringing multi-disciplinarity to bear on important public policy issues is what our School is about. I hope the Governance Report 2015 can be a useful example of applying that mission to today’s EU.

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