CLOSING THE DELIVERY DEFICIT: The future of economic governance in Europe By Alasdair Murray ★ The Council of Finance ministers should assume leadership of the EU’s efforts at economic reform. Ecofin should become a ‘Super-Council’, co-ordinating all the Union’s economic policy-making. ★ The EU should merge the plethora of specialist industry councils into an ‘Enterprise’ Council led by European industry ministers. The Enterprise Council should push forward structural reform, placing a special emphasis on improving the environment for entrepreneurs and small businesses. ★ The Commission should appoint a ‘Lisbon’ commissioner to oversee its own work on economic reform.
The EU has set itself a series of highly ambitious economic goals to fulfil in the next decade. Eurozone countries are committed to ensuring the longterm health of the single currency, which will mean further economic integration. The Union will need to incorporate successfully at least ten dynamic but diverse accession country economies. Above all, the EU is determined to meet the target, set in Lisbon in 2000, of becoming the “world’s most competitive knowledge-based economy” by 2010.
The Lisbon agenda, in particular, poses a new set of problems to the EU’s traditional way of taking decisions. The EU has set out a broad reform programme, which could influence almost every aspect of the member-states’ economic and social structures. The EU will need to employ a mixture of policy measures to achieve its Lisbon goals. This means the Union must not just improve the quality of single market legislation, based on the traditional ‘Community method’. The EU must also make better use of the ‘open method of co-ordination’ – the (EU’s) recently developed system of target setting, benchmarking and peer pressure.
However, the EU’s existing institutional structure appears inadequate to cope with these economic challenges. The EU has so far made only patchy progress towards meeting the Lisbon goals. At the Barcelona summit in March 2002, EU leaders again failed to make substantial headway – despite Tony Blair’s insistence that it was a “make or break” meeting for economic reform. Moreover, budgetary co-operation between euro-zone countries appears to be faltering. President Chirac, for instance, has apparently reneged on a commitment to balance the French budget by 2004.
The imminent enlargement of the Union is likely to exacerbate the problems the EU faces in turning its economic reform rhetoric into action. An EU of 15 members already finds it extremely difficult to find a common position on many economic issues. The EU has still not reached agreement on vital legislation such as the Takeover Directive – despite a decade of trying. Soon there will be up to ten new member-states, each with their own political sensitivities and economic idiosyncrasies, which will need to be taken into account.
The EU’s economic challenge
Centre for European Reform 29 Tufton Street London SW1P 3QL UK
T: 00 44 20 7233 1199 F: 00 44 20 7233 1117 info@cer.org.uk / www.cer.org.uk
The Commission responded to these problems in responsible for drawing up the Ecofin agenda and for May 2002, claiming – in its submission to the helping finance ministers deliver on their agreed Convention – that the Community method should be policy goals. The chair should also work closely with strengthened for EU budgetary policies. However, the the economics and monetary affairs commissioner on reviewing EU budgetary policies: the Commission was silent on what priority should be to refine the workings of institutional reforms may be needed to Ecofin should the Stability and Growth Pact, in a less ensure the EU can make real progress become a ‘Super- rigid direction, rather than increase the towards its Lisbon goals. Council’ taking on Commission’s powers to bring memberThe Commission must continue to develop the over-arching states into line. vital single market measures and provide authority of the While there remains a distinction between intellectual support to the Council of General Affairs the Euro Group, the informal Council for Ministers. However, only if member-states Council, but on euro-zone finance ministers, and Ecofin, the intensify co-operation, both on the economic issues Ecofin chair should hail from a euro-zone Community and open method elements of country and oversee both formations. The the economic reform programme, will the EU have any chance of meeting its Lisbon targets. The election of separate chairs for each group would EU badly needs to overhaul the existing way the undermine continuity and hamper co-ordination Council functions, which is not conducive to effective between EU macro and micro-economic policies. If co-ordination and the pursuit of long-term policy goals. there was a single elected chair, the case for granting the The six-monthly rotation of the presidency too often Euro Group formal legislative power – as the leads to a breakdown in policy continuity, as the agenda Commission proposes – would be weakened. The becomes cluttered with the particular concerns of the creation of a formal Euro Group would also prove latest chair. The large number of separate Councils politically divisive, particularly in an expanded EU means that policy decisions are often disconnected and where a large number of member-states are likely to be, there is little coherence between overlapping initiatives. initially at least, outside the euro.
A stronger role for Ecofin If the EU is going to deliver on its economic promises it is essential that the Council of Finance Ministers (Ecofin) assumes centre-stage in the reform process. Only finance ministers have the political clout within their governments to deliver on the full range of Lisbon targets. In many European governments, finance ministers act as deputy prime ministers in all but name, using their control of the nation’s purse-strings to influence the policies of other ministers.
The new chair should consider two specific innovations to help improve the continuity and the transparency of Ecofin decision-making. First, the chair should prepare an annual list of overall goals, with the agreement of the finance ministers and the support of the Commission. The European Parliament should have the opportunity to question the chair about the choice of goals and to monitor progress across the course of the year.
Second, the chair should lead Ecofin in an assessment of the Lisbon agenda ahead of the EU’s spring European Council. This should The Commission involve not just a review of progress in must continue to areas that are strictly the preserve of Ecofin, such as financial services or labour develop vital single market issues, but also an assessment of market measures relevant work conducted by other Councils and domestic ministers. and provide
Moreover, only Ecofin can restore continuity between EU micro-economic and macro-economic policies. Structural economic reforms, including the overhaul of labour and product markets, are vital to ensuring the long-term health of the single currency, in particular, and the EU economy in general. A concerted intellectual support European economic reform effort would to the Council of An economics ‘Super-Council’ enable the EU to raise its long-term trend Ministers growth rates. Improved growth would Ecofin should become a ‘Super-Council’, help to reduce unemployment and make it taking on the over-arching authority of easier for euro-zone governments to meet the fiscal the existing General Affairs Council, but on constraints of the Stability and Growth Pact. economic issues. This means that Ecofin should oversee the other sectoral councils, such as the The existing system of the rotating presidency means specialist single market formations, which have an that difficult political issues, such as tax policy, tend economic dimension. Finance ministers should be to drop on and off the agenda, depending on the able to try and broker deals on energy and postal priorities of the minister in the chair. Instead, finance liberalisation, for example, if their ministerial ministers should elect their own permanent chair. This colleagues fail, rather than leaving these often modest reform would greatly improve policy extremely complex issues to the heads of continuity without needlessly further complicating the governments in the European Council. In effect, EU’s institutional structure. The chair, who should Ecofin should become the clearing-house for the serve for a period of two and a half years, would be Lisbon economic reform programme.
In return for this formal Super-Council role, finance ministers should cease to attend the European Council itself. This would have two direct benefits: first, it would reduce the number of ministers and officials attending European Councils, helping to restore their informality. Second, not allowing finance ministers to attend the European Council would increase the pressure on Ecofin to reach agreement ahead of a summit. After all, this would be the only way that finance ministers could take political credit for progress on important issues.
Secondly, one senior minister in each member-state would in future take full responsibility for overseeing this part of the EU’s economic reform agenda. Industry ministers generally enjoy a high political standing within their own governments but have not had a clear-cut role on the European scene. The creation of an Enterprise Council would ensure that industry ministers developed ‘ownership’ of this aspect of the EU’s agenda. Moreover, a powerful Enterprise Council would provide a political counter-weight to a stronger Ecofin. Ecofin would have the right to arbitrate when the Enterprise Council failed to reach agreement on key reform issues. But the EU would greatly benefit from having a single Council working full-time on business and competitiveness issues.
However, one Ecofin representative – the elected chair – should continue to attend any summit where economic issues are discussed. The chair should present Ecofin’s recommendations to the heads of government and deliver the Lisbon assessment report at the spring European Council. The chair would also be responsible A ‘Lisbon’ commissioner for communicating back to the finance ministers the strategic goals agreed by The reform of the EU’s economic The EU should consider councils should not diminish the power the heads of government. merging the industry, of the Commission. On the contrary, An ‘Enterprise’ Council single market, energy, the Commission will continue to play a and telecoms councils pivotal role in preparing legislation increasingly, developing Ecofin’s reconstitution as a Super- into a single ‘Enterprise’ and, benchmarks and targets for the Council, combined with the election of Council, under the member-states to pursue. a chair, should help to ensure greater guidance of industry strategic leadership and improve coAt present, responsibility for economic ordination on economic policy issues. ministers reform issues is split between a number However, further progress on the EU’s ambitious economic agenda requires other ministers of commissioners – those for social affairs, the single and EU councils to play an important supporting market, enterprise and energy and transport. While the role. In particular, the raft of internal market related tasks of preparing legislation should remain with the councils – such as energy and telecoms – continue to individual commissioners, it would make sense if one senior commissioner took responsibility for overseeing conduct vital work. the entire economic reform programme. But the EU possesses far too many specialist councils for effective decision-making. Rather than The new ‘Lisbon’ commissioner should work in continuing with a plethora of single market and tandem with the chair of Ecofin to ensure that the industry-related councils, the EU should consider EU’s strategic economic targets are fulfilled. The merging the industry, single market, energy, and commissioner should monitor the progress of the telecoms councils into a single ‘Enterprise’ Council, various Commission directorate-generals in meeting their legislative goals. The commissioner should also under the guidance of industry ministers. refine and develop the Commission’s approach to the The establishment of an Enterprise Council would non-legislative elements of the reform programme. bring some distinct benefits to the EU economic policy process. First, it would enable the EU to The Commission continues to adopt an ambivalent develop a more coherent approach to business- attitude towards those aspects of policy-making related policy-making. The Council should focus which fall outside the scope of the traditional on all those micro-economic reforms, such as the Community method. However, the open method of liberalisation of the utilities sector, which improve co-ordination is often the only policy suitable for the underlying competitiveness of the European economic reform issues. The Commission should economy. But the Council should also take the lead be leading attempts to improve the EU’s efforts at on initiatives designed to encourage entrepreneurs co-ordinating economic policy in this fashion. Only and improve the environment for small businesses. the Commission possesses the resources, and An Enterprise Council should be better able to crucially the independence, to ensure that the open develop a meaningful system of benchmarks and method finally becomes a powerful tool for European economic reform. targets to achieve this goal. Alasdair Murray is director of the economics and social policy unit at the CER