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A one Euro coin stands on a map of Brussels on December 9, 2011 in Berlin, Germany.
In the last three years, euro-zone governments have ceded enormous economic powers to the European Commission in Brussels. Their desperate efforts to resolve the bloc’s financial crisis have entailed hurried transfers of national sovereignty on a scale that has few precedents.
Now, with the immediate storm having passed, some governments are beginning to realize the consequences of their actions. Having bought the mostly German prescription for dealing with the crisis, they are now suffering buyers’ remorse.
The EU executive is being assailed from all sides. While Paris criticizes the commission for fueling right-wing extremism, Berlin suspects it of going easy on some of the region’s economic laggards.
It is in the middle, one senior commission figure complained this week, of two conflicting economic philosophies, one centered on Socialist-run France and the other on center-right Germany, which worries that it will end up picking up the tab for the profligacy of others.
French officials have in recent weeks turned their fire on to Brussels, rather than Berlin—even after the commission, in the opinion of some observers, stretched its own rules to allow France a two-year grace period until 2016 to meet its budget deficit target.
However, an examination of the economic powers that the commission has already gathered suggests that blowback is unsurprising. It can warn and eventually fine a country if it fails to listen to the commission’s warnings over its budgets and other economic policies, it can send missions to countries whose economic policies are seen as posing a wider threat, and publicize weaknesses that national governments would prefer to see hidden.
And it hasn’t even begun exercising all the powers it has—let alone those that it might yet get. From this fall, euro-zone member states will have to submit their budgets in advance to the commission for scrutiny before they go to national parliaments, and the commission will be able to recommend amendments. Later on, the commission could be asked to take on authority to wind down national banks—an unpleasant politically charged task that some see as a poisoned chalice.
“Countries gave up huge amounts of policy power during the crisis and only now in more normal times realize how much,” said Mujtaba Rahman, Europe director at the Eurasia Group economic consultancy in New York.
“Agreeing to things is easy, but credibly enforcing them is and will continue to prove much more difficult.”
One reason that this is proving difficult is that the changes introduced since the crisis are almost entirely about sticks for errant governments, rather than carrots for changing policies. The German model for European monetary union has prevailed and it is one that focuses, in the European jargon, on “discipline and sanctions” rather than on “cohesion and solidarity.”
Some senior EU officials also now say there has been an excessive focus on budget issues in the response to the crisis—partly because policy makers generalized from Greece, the first crisis country, whose problems were fiscal at root. Some feel the initial focus on castigating spendthrifts deepened economic downturns and forced austerity programs on other crisis countries—Ireland, Spain and Cyprus—whose problems derived not from budgets but from their banks.
Another complaint is that the commission isn’t focused enough. One European official points out that in 2012, it made 136 so-called country-specific recommendations to improve national economic policies. Of these, only 15 were fully complied with.
While the commission argues that the recommendations encouraged many positive changes short of complete compliance, critics say that if it creates too many priorities, it risks meeting none.
Charles Grant, director of the Centre for European Reform, a London-based, pro-EU think tank, says the commission draws extra fire because of its contradictory roles. It is at once the political body that initiates legislation and brokers compromises among EU members—but also the technical body that polices markets and rules.
It is this technical role that has grown. “When it pronounces, say, that France may be given two further years in which to meet the 3% budget rule, is that the result of objective economic analysis or a reflection of the shifting political climate in national capitals? This ambiguity gives governments and others an excuse to criticize the commission,” Mr. Grant argued in an article published on the CER website Thursday.
There appear to be two alternatives. The commission soft-pedals on the new rule book to make itself less vulnerable to criticism from member states or it vigorously enforces its growing powers without fear or favor. The first seems likely to undermine credibility in the new regime—as did the flouting of the original euro-zone budget rules in 2003 by France and Germany. The second would probably intensify national criticism of Brussels and further erode political support for the EU.
It’s a tough dilemma for EU policy makers. More important, it is one that raises real questions about whether the further steps eroding national sovereignty, that many officials and economists believe are needed to ensure the euro zone’s long-term survival, will ever be politically acceptable.
Write to Stephen Fidler at stephen.fidler@wsj.com
A version of this article appeared June 29, 2013, on page A12 in the U.S. edition of The Wall Street Journal, with the headline: Europeans Balk At Own Strictures.
Read the original here: Caught Between Rock, Hard Place in Brussels
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