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Europe's Crisis Is Constitutional

28/01/2015 08:50 GMT | Updated 29/03/2015 10:59 BST

The dilemma in which Mario Draghi found himself over quantitative easing is emblematic of the state of the European Union as a whole. Like other of the EU's crisis management measures, the resort to QE has been criticised for being too little and too late. The impact of QE is certainly undermined by relying so heavily on national central banks to act as backstops: only 20% of the bond purchases undertaken by the European Central Bank (ECB) is to be subject to the joint and several responsibility of the collective eurozone. In other language, QE is 20% federal and 80% confederal - with the larger part, if it all goes wrong, risking fragmentation of the monetary union.

Mr Draghi is not to be blamed for this predicament. It is not his fault that Germany has abandoned its once legendary commitment to the independence of the ECB. German disgruntlement is not limited to the Bundesbank. Its constitutional court, the Bundesverfassungsgericht, is equally at odds with the European Court of Justice (ECJ) in the preliminary ruling on the legality of the ECB's outright monetary transactions [Opinion of Advocate General Cruz Villalon in Case C-62/14]. In another equally sensitive case, the ECJ has rejected the basis on which Germany and the other states negotiated the EU's accession to the European Convention on Human Rights [Opinion 2/13].

These are but three powerful examples of the European Union's growing constitutional difficulties. The Treaty of Lisbon, some nine years in gestation and just over five years in operation, is being tested and found wanting. If and when Alexis Tsipras turns up at his first meeting of the European Council on 19-20 March, the tension between the eurozone's debtors and creditors will be emblazoned in headlines. Matteo Renzi is already up against the limits of the capacity of the Italian state to undertake the structural reforms on which Germany insists. Other leaders, notably of Spain, Britain and Belgium, are struggling to stem the rising tide of neo-provincialism: centrifugal forces at home compete with the centripetal force of European integration to weaken the capability and credibility of the old nation states. Across the Union, not least in France but now even in Germany, the rise of right-wing nationalism confounds the established political order of the pro-European mainstream. The UK is even thinking of leaving the EU altogether.

The overall effect of the various responses to the financial crisis, some more successful than others, has been to strengthen the technocratic character of the EU and to jeopardise its democratic legitimacy. The European Central Bank has been given important new powers to supervise the banking system, but the much-vaunted full 'banking union' will remain unreachable until treaty change allows the ECB to acquire the normal central bank status of last resort. The bail-out instrument of the European Stability Mechanism and the imposition of fiscal austerity have taken the form of extra-EU measures in order to evade the constraints of the Lisbon treaty. As things stand, the EU is empowered only to coordinate the national economic policies of the member states and forbidden from having one common policy for the Union as a whole combining fiscal, monetary and economic measures. The financial assets at its disposal are limited, and its revenue is controlled entirely by national treasuries. It is hardly surprising, given the scale of the slump and the weakness of economic governance, that the European economy remains stagnant.

Confederal or Federal?

The truth is that the Union is trapped in a limbo between a confederal arrangement (which is proven not to work well) and a federal union (which has not yet been tried). There has always been a natural tension in the Union between intergovernmental and supranational methodology. The common institutions of the European Parliament, Commission, Court of Justice and now Central Bank have been more tolerated than admired: today rising intolerance borders on contempt. The EU is run increasingly by the part-time and indistinctly accountable European Council of heads of national governments - most of whom spring from national political parties and parliaments that have long-since ceased to support the European project in any meaningful way.

Unfortunately, faced by these and other intense political difficulties - we say nothing here of Mr Putin or Islamist fundamentalism - the EU is tempted to tinker with marginal adjustments to its system of governance. Many bleat about the need for 'reform', but dig deeper and their goal appears merely to buy time. 'The danger is', as one of Mrs Merkel's advisers told me, 'that we are now buying time but not using it'. So what is to be done?

In my new book Pandora, Penelope, Polity: How to Change the European Union, I argue that a radical revision of the EU treaties cannot long be avoided. The main purpose of such constitutional reform will be to deepen fiscal integration and provide for the progressive mutualisation of sovereign debt as and when it becomes politically acceptable to share the burden among EU citizen-taxpayers. But a fiscal union can only be run by a federal government, and this executive, with its treasury, can only work if it is based on the supranational European Commission and not on the intergovernmental European Council. Other items will jostle their way on to the constitutional agenda: the need for a new financial system; the conferral of more competences on the Union in the fields of energy supply and immigration; the modernisation of many other common policies, such as transport and agriculture; the rectification of some of the less good institutional prescriptions of Lisbon; the electoral reform of the European Parliament; and, oh yes, a settlement of the British problem. In short, the aim of the exercise is to make the treaties less prohibitive and more permissive, so that the Union emerges with a much greater capacity to act effectively and democratically across the spectrum of public policy.

Getting Ready for the Convention

Of course, all this requires wisdom, courage and leadership, not least from Jean-Claude Juncker's European Commission, backed by a solid majority of MEPs. The next phase of the EU's constitutional evolution needs to be well prepared after studious reflection. A new Convention tasked with the job of amending the Lisbon treaty will bring together the four components of heads of government, the Commission, the European Parliament and national parliaments. The drafters will work in the certain knowledge that their final product will have to run the gauntlet of referenda in a number of countries. EU citizens would be wise to pay attention to what goes on.

The British public and media will have to make a special effort. It is not true that EU treaty change can be made simply by dint of an agreement between David Cameron and Angela Merkel. Nor is it the case that there is a magical fast-track formula to revise the treaty: MEPs know that unless they exercise their proper right to insist on the calling of the Convention, the European Parliament will be consigned to irrelevance. And specific British demands, whatever they may be, will have to find their place on a Convention agenda that is wider, deeper and eminently more pressing in the direction of federal union. Labour and the Liberal Democrats wish to reject Mr Cameron's artifice of a renegotiation of British terms of membership, but neither party knows where the UK should sit in the context of a federal Europe. The opposition parties, including the Greens and the Scottish Nationalists, need to do some homework, not least because, come May, they may find themselves in a coalition government. It would be good for once to have a British government that sought to help Europe unite.

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Andrew Duff was a Liberal Democrat MEP 1999-2014 and President of the Union of European Federalists 2008-13. He took part in the drafting of the Treaty of Lisbon. His latest book Pandora, Penelope, Polity: How to Change the European Union is published this month.