Changing gear – The Barcelona European Council

Changing gear – The Barcelona European Council

John Palmer, Director of The European Policy Centre, reports from Barcelona about an EU leaders’ summit dominated by the Lisbon economic reform agenda.

As is so often the case with meetings of European Union heads of government, the Barcelona European Council was preceded by exaggerated expectations on the part of some political leaders and by a pervasive and unjustified pessimism on the part of the media. The Barcelona summit was not the “make or break moment” for the entire Lisbon economic reform process – as was predicted in advance by British Prime Minister Tony Blair. But its concrete achievements in delivering decisions on further liberalisation of markets were more substantial than the cynics had predicted.

At the end of the day it is difficult to disagree with the British Prime Minister’s judgement that Barcelona marked a certain “change of gear” on economic strategy by all 15 EU Member States. A year or so ago there was still a basic political argument about the broad direction which market economic reforms and modernisation should take to realise the goal, set out in Lisbon two years ago, of making the European Union “the most competitive economy in the world.”

Today, across the spectrum of centre right and centre left governments, there is almost complete agreement with the priorities of further market opening and placing life long learning and re-skilling of those excluded from the labour market at the heart of its strategy, both for boosting employment and for tackling poverty and other social inequalities. On the one hand the French government has now agreed to open up its business markets for gas and electricity in 2004 and has accepted that proposals to be introduced at the end of this year for the full opening of the energy market may be decided by a qualified majority vote decision.

On the other hand a number of right of centre governments, notably the Spanish Presidency itself, had to accept – at the insistence of the Nordic governments in particular – far reaching commitments to integrate sustainable development into the heart of the Lisbon process. Alongside the push for more flexible labour markets was an insistence on further measures to tackle poverty and social exclusion – including removing discrimination against women, the elderly and other groups obstructed from gaining employment and a call on governments to focus any future tax cuts on the low paid.

The shift in economic gear towards structural reform and flexibility in part reflects the growing political successes of centre right parties in winning power in EU countries at present. But there is little or no support for any wholesale surgery to cut back, let alone eliminate, the welfare-based European social models. There is no doubt that a central dynamic behind the Barcelona decisions is a growing anxiety about the entrepreneurial, investment and IT competitiveness gap which is opening up between the EU and the United States. But equally there is no evidence that the Union is now poised to adopt the American economic and social model.

EU security challenges – and concerns

There were discussions – some formal, some very informal – of a series of pressing global foreign and security policy issues. These included the crisis in the Middle East, the growing confrontation between the US and Iraq, the prospect of the EU taking responsibility for peace keeping in Macedonia, and the outcome of the discredited elections in Zimbabwe.

On Iraq there were frankly confusing reports from the discussions of the EU leaders. All the leaders insisted that no formal debate or discussion had taken place and no decisions of any kind had been adopted about any possible future US action against Iraq. But there were persistent r eports that there had been “important exchanges in the corridors” about the possible line the EU might take. According to these reports most EU states might be willing to back “limited and targeted” action against Iraq if Saddam Hussein refuses to admit United Nations arms inspectors and if any action is covered by a UN mandate.

Chancellor Schroeder and Commission President, Romano Prodi, both spoke out against any “unilateral” military action by the US against Iraq – a widely shared view. But should the UN be barred from entering Iraq and should there be a new UN mandate sanctioning some kind of military pressure on Baghdad, it begins to look as if the EU would back Washington with some Member States possibly even taking part. Most senior diplomats in Barcelona believe these decisions are some months away, however, and that any formal decisions on this issue remain premature.

What is clear is that, in the intervening period before a potential crisis with Iraq in the late summer or autumn, the European Union wants the US to use its full resources to produce a breakthrough in what the European Council described as “an extremely grave crisis” in the Middle East. Not to put too fine a point on it, the EU now expects Washington to deliver the Israeli government to negotiations designed to produce peace, a secure Israel and a viable, independent Palestinian state. The unspoken message is that if the US is to hold together a credible international coalition in the fight against terrorism – in Europe as well as the Middle East – it has to act decisively now on Palestine.

The Barcelona summit expressed pleasure at the agreement between Serbia and Montenegro to retain links and at political developments in Macedonia. Moreover there is an increased prospect that the EU will take over responsibility from NATO for the peace- keeping mission in Macedonia – “Operation Amber Fox.” However this is still dependent on a final resolution of problems (mainly posed by Greek/Turkish differences) on permanent arrangements for EU/NATO military cooperation.

The EU leaders expressed their condemnation of the recent elections in Zimbabwe and their fears for the safety of opposition leaders. Additional sanctions aimed at the Mugabe regime will, however, be dependent on consultation with South Africa and other countries in the region.

Council reform, the Convention and the Future of Europe

Needless to say the Barcelona European Council had a lot more on its plate than a review of the Lisbon process. There was an important first discussion on proposed reforms designed to strengthen the European Council and the Council of Ministers. The paper presented by the Secretary-General of the Council, Javier Solana, which suggested ways in which the leadership role of the Council might be strengthened, received a generally positive response. He was encouraged to present a fuller, possibly more ambitious paper for decision in Seville in three months time. However any reforms which involve changes to the Treaties (such as a comprehensive re-engineering of the system of EU Presidencies) will have to await the conclusions of the Convention on the Future of Europe next year and eventual decision by the planned Inter-Governmental Conference in 2004.

The one public note of dissent on this debate was voiced by the Dutch Prime Minister, Wim Kok, who said that the decision to exclude EU foreign ministers from that part of the summit was simply “unacceptable.” The background to this outburst is the growing support for transferring responsibility for managing the General Affairs Council from Foreign Ministers to special “Europe ministers.” The idea is that these ministers should have a designated mandate from the heads of governments to resolve internal policy disagreements – not least to free up summit meetings for major issues of strategy. This could cause trouble for some coalition governments.

In spite of this there is a growing consensus behind moves to streamline and strengthen the Council. This may even cover suggestions that Heads of Government appoint one of their own to be “President of the European Union” for a period of 2 ½ or even 5 years. Meanwhile the usual functions of the now discredited six month rotating Presidency might be assumed by a system under which a restricted number (10?) of Councils elect their own Presidents – presumably made up of a cross section of Member States – to work as a collective Presidency.

However some of the smaller EU Member States (and many of the candidate countries who took part in the Barcelona meeting) are anxious to see how a much needed strengthening of the Council will be balanced by a parallel strengthening of the EU institutions – notably the Commission. They will watch closely to forestall any attempt which might be made in Seville to pre-empt the comprehensive review of institutional reform now being undertaken by the Convention. For its part the Commission may put forward its ideas on institutional reform next month.

Those Member States keen to see a strengthening – not a weakening – of the “Community system” and to limit “inter-governmental” decision making, dominated by the bigger countries, are in a strong bargaining position. Their agreement to any changes in the EU Treaties will be necessary. And their price is likely to be matching action to strengthen the Commission and the European Parliament – including giving MEPs a role in electing future Presidents of the Commission. In this context it was significant that the newly elected President of the European Parliament, Pat Cox, received an exceptionally warm reception from Heads of Government for his strong and clear message that the European Parliament is now at the heart of the EU decision making system and intends remaining so.

The Irish Prime Minister, Bertie Ahern, reviewed the uncertain prospects for the ratification of the Nice Treaty in Ireland. He has asked fellow EU members to help produce a declaration which would underline that there is nothing in the security and defence provisions of the Nice Treaty to compromise Ireland’s status as a non-aligned country. Mr Ahern confirmed that he plans a new referendum before the first European Council under Denmark’s Presidency – which implies a referendum in September or October.

Opening markets – and the skies

The biggest single achievement of the summit was its decision to open up some 60 per cent of the total energy market to competition. This was made possible by the French government’s acceptance of a compromise – spearheaded by the President of the Commission, Romano Prodi, under which the business market will be opened up at the end of 2004. This will leave the date for full liberalisation – to household consumers – to be dealt with on the basis of the Commission’s existing proposals by no later than the end of this year. These proposals – crucially – can be resolved by a majority vote.

“We have taken a fundamental step today” the Spanish Prime Minister, Jose Maria Aznar, declared after the meeting. For their part French ministers were able to point to a decision to take further measures next year on the definition of public services obligations, security of supplies and protection of vulnerable groups and remote areas.

At the same time a tariff setting system for cross border transactions in electricity is to be agreed by the end of this year. Environmentalists will also be pleased that, in parallel with the opening up of the energy markets, the Council is also asked to agree to the long delayed energy tax directive no later than this December.

In the telecoms field, full implementation of the new communications regulatory package should be completed by May 2003 while the heads of government insist the Directive on data protection should be “adopted rapidly.” Further ahead, th e Barcelona summit wants broadband networks to be widely available by 2005 while the Commission will present, before the Seville European Council in June, a comprehensive eEurope 2005 Action Plan which will also deal with eGovernment, eLearning, eHealth and eBusiness. Seville will also deal with all remaining barriers to new IT services such as digital TV and 3G Mobile.

The summit leaders welcomed the recent breakthrough in negotiations to develop the Galileo space satellite navigation system – in the face of some opposition from the United States and earlier cynicism on the part of some EU governments. Moreover the package of Commission proposals designed to bring about a single Open Sky in Europe – which has important travel safety implications – must be adopted in 2004.

The summit predictably welcomed the agreement on the Lamfalussy proposals on regulation of capital markets. However, once again, there was no agreement on implementing the Community Patent. One obstacle remains the issue of languages – above all for Spain. According to Spanish experts, excluding Spanish as a patent language would mean losing valuable business with Latin America. The German government also has legal difficulties. However ministers have been asked to reach a common political position in two months time.

It’s education stupid

Two years into the Lisbon process, if there is one word which is heard almost as often as entrepreneurship and competitiveness, it is education. It is becoming increasingly clear that the longer term 2010 goals of the Lisbon process cannot be achieved without a radical increase in investment in education – including life long learning. This, however, has implications for public spending which were not dealt with specifically in the cautiously optimistic review of the overall economic outlook for the Union.

The heads of government reiterated their commitment to the Maastricht Treaty provisions for public finances and insisted that only budget discipline would allow Member States the leeway needed to handle the inevitable, cyclical ups and downs in economic growth. At some point, however, there will need to be greater clarity about how higher education spending fits in with the broad priorities for investment in the future.  

Some economists are already calling for a sharper distinction to be drawn between consumption and investment (including education) in measuring public finance deficits within the Maastricht Treaty rules. For the moment, however, the economic priority is to reform tax and social security “to make work pay” and to encourage collective bargaining between employers and trade unions to accept more explicit links between pay, productivity and labour market conditions. But in a move possibly designed to reassure labour, the summit conclusions emphasises that “the Social Agenda agreed at Nice (is) an important vehicle for reinforcing the European social model.”

In line with the goal of achieving a “Knowledge Economy and a Knowledge Society” the EU intends to strengthen its presence in the new science based industries. The heads of government agreed that overall Research and Development expenditure – as a proportion of GDP – should rise from 1.9 per cent at present to “approaching 3 per cent” by 2010. Measures to create a “European Knowledge Area” – designed to improve European business’ competitiveness in the science based industries (including life sciences and biotechnology) will be proposed by the Commission next year.

John Palmer, Director of The European Policy Centre

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