Opinion & analysis

Report | What to Expect in Biden’s First 100 Days in Foreign Policy | Foreign Policy

The reversal of Trump’s reversals is coming, as President-elect Joe Biden has vowed to unwind major Trump-era policies to contend with a massive array of new national security threats, from the ongoing coronavirus pandemic to a surge in U.S.-China tensions to an Iran nearing the cusp of producing a nuclear weapon, R. Gramer, A. Mackinnon, J. Detsch and C. Lu argue.

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The EU’s ‘watchdogs’: Assessing the powers of the European Ombudsman and European Court of Auditors | Europp – LSE Blog

European Youth Event #EYE2018 – Lunch talk with the European Ombudsman ‘ APART AND TOGETHER: working out for a stronger Europe ‘

The European Ombudsman and European Court of Auditors both play an important role in guaranteeing the EU’s transparency, accountability and integrity. Anchrit Wille and Mark Bovens argue that the key to understanding the impact of the two institutions lies in the use of their powers, rather than the formal remits they have been assigned.

In the eyes of many European citizens, the EU has become a symbol of bureaucratic waste. Yet, citizens or organisations that experience problems with the EU’s administration, in terms of misconduct or corrupt behaviour, can contact the European Ombudsman (EO) and lodge a complaint. Meanwhile the European Court of Auditors (ECA) oversees how EU taxpayers’ money is used, and reports this to the EU Parliament and to EU citizens. These two EU watchdogs operate independently, with each playing a key role in securing the EU’s transparency, accountability, and integrity.

The work of auditors, ombudsmen and integrity offices in modern democracies increasingly complements the oversight functions of the established branches of government. Some even see them as an indication of the rise of a ‘fourth branch’ of government alongside the legislature, executive, and judiciary. These watchdog institutions have become more important as the programmes of the EU have become more complex and specialised. Scrutiny of EU governance increasingly requires the input of sophisticated ‘accountability professionals’. Likewise, audit institutions and ombudsmen are more and more seen as advocates of good governance, promoting best practices and institutional learning.

As these watchdogs have gradually become more salient in the EU accountability landscape, the need for more knowledge of the institutional and operational elements that affect their effectiveness as accountability institutions has also grown. How powerful are these watchdog institutions in holding the executive to account?

Actions speak louder than formal remits

In a recent study, we systematically assessed the accountability powers of these two EU watchdogs vis a vis the EU executive with the help of a newly developed index that provides systematic evidence on three dimensions. A watchdog has strength if it has the formal powers to contribute to account holding, if it has the organisational powers to hold the executive to account, and if it actually exercises relevant account holding activities.

The index provides an instrument to gauge differences between watchdogs, and to monitor longitudinal developments. It also provides evidence of some clear trends in this fourth branch of government. Whereas previous research into independent oversight bodies emphasised the importance of the formal position and organisational powers (such as independence, autonomy, mandate and resources) of these institutions, our study indicates that it is the exercise of powers that determines the strength of these watchdogs in the contemporary accountability landscape.

Three elements in the exercise of accountability powers have become progressively more relevant for the expanding powers of these institutions. First, the two watchdogs play a clear role in the system of parliamentary fire alarms. The interaction between the watchdog institutions and parliaments and courts determine their role in the broader accountability landscape. The two watchdogs report and advise, but when push comes to shove, both institutions can only enforce accountability indirectly by referring their findings to the legislature and the judiciary. Their impact hinges to a large extent upon the quality of the system of cooperation with these institutions. The European Parliament depends on the Court of Auditors and the European Ombudsman for reliable information, while the watchdogs depend on the Parliament to provide a public forum for presenting and discussing their reports and recommendations.

Second, increased visibility has become an important aspect of reputation management, which has become critical for accountability management. Both watchdogs have not only increased their productivity over the last 15 years (see the two figures below), but have also diversified their output. In the past, the ECA focused chiefly on the compliance and regularity audit, but during the last decade more efforts have been devoted to conducting performance audits. The ECA uses its advisory role and publishes special reports, presenting the results of selected performance and compliance audits, which can be published at any time during the year, and opinions and position papers on topics related to EU financial management.

Likewise, the EO produces strategic inquiries, publishes special reports, decisions, and recommendations, and organises public consultations This diversification of output makes it possible to increase institutional branding. Both institutions try to make their products visible, employ strategic communication activities to engage with their various stakeholders and emphasise the relevancy of their work to the wider public of EU citizens – ‘the man on the bus’ in the ECA’s terminology.

Figure 1: Output by the European Court of Auditors between 2004 and 2019

Note: For more information, see the authors’ accompanying paper in the Journal of European Integration.

Figure 2: Output by the European Ombudsman between 2003 and 2019

Note: For more information, see the authors’ accompanying paper in the Journal of European Integration.

Third, watchdogs are increasingly expected to become improvement oriented in their work, promoting best practices and institutional learning. As a consequence, watchdogs need to find a balance between their role as independent accountability forums and their new role as agent of change, advocating reforms. With the strong encouragement of the EP, the EO has developed its capacity to be both an effective firewatcher and a fire-preventer. The EO has, for instance, been very active in setting standards ensuring EU bodies guarantee the transparency of the EU’s decision-making process.

The EO’s recommendations are not legally binding and it is not a formal lawmaker. Still, its soft power has a broad reach and it has already shown itself to be able to instigate legal and governance reforms. The emergence of international networks of ombudsmen and audit institutions and the establishment of professional standards, international norms and other soft law regulation, has contributed to their increased improvement orientation. The two watchdogs are progressively acting as quasi-regulators by setting standards for good administrative behaviour and for public financial management and audits.

An important lesson from our study is that besides their formal remit and organisational resources, it is the exercise of these powers that progressively determines the strength and the effectiveness of watchdogs. Their accountability strengths do not necessarily increase by enhancing their formal powers, but rather through a more effective use of the powers they already have. In particular, soft power and smart power strategies play an important role in the contemporary accountability landscape.

For more information, see the authors’ accompanying paper in the Journal of European Integration


Note: This article gives the views of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: European Ombudsman

Evidence from the European Commission: Does it matter how policymakers consult external stakeholders? | Europp – LSE Blog

Policymakers often consult a range of stakeholders, such as interest groups representing businesses or citizens, before they make decisions. But do the particular consultation tools used matter for the outcomes of this process? Drawing on a new study of the consultation tools used by the European Commission, Bert Fraussen, Adrià Albareda and Caelesta Braun suggests that despite the recent trend of using ‘open’ approaches such as online consultations, ‘closed’ consultation approaches in which policymakers play a more active role often offer a more promising approach for engaging a diverse set of actors.

The consultation of different types of stakeholders, such as industry federations, NGOs, professional associations, firms and public institutions, is a central characteristic of contemporary governance. But although public officials nowadays use a variety of tools to engage with external stakeholders, such as online consultations, workshops and advisory councils, we have limited knowledge about how the combination of consultation tools relates to the participation of stakeholders and the diversity of engaged societal interests.

Yet, this diversity of engaged stakeholders is absolutely crucial. As Tina Nabatchi has argued, by engaging a more diverse set of societal interests, public officials “give voice to multiple perspectives and different interests, allowing for more thoughtful decisions that take a broader view of those who will benefit or be harmed by an action”.

In a recent study, we analysed how the European Commission involves external stakeholders in policy formulation, specifically examining how variation in consultation approaches shapes the diversity of external stakeholders that engage with EU policymakers. We focused on organised stakeholders, including interest groups (citizen groups and business associations), companies and public institutions (such as local governments). Our sample included 41 regulations and directives that were passed in 2015 and 2016.

The Charlemagne building in Brussels, Credit: Eddy Van 3000 (CC BY-SA 2.0)

Conceptually, we can distinguish between three different approaches for engaging external stakeholders: namely ‘open’, ‘closed’ and ‘hybrid’ approaches. An open approach implies the use of tools that are accessible to everyone, and which (in theory) enables an unlimited number of stakeholders to share their views and preferences. Internet consultations are a typical example of an open consultation approach.

closed approach refers to the application of tools where policymakers decide who gets a seat at the table, and that only allow for a limited number of stakeholders to participate. Think of an expert committee, or an advisory council. The third option, a hybrid approach, combines tools associated with open and closed approaches. In this scenario, the consultation process might start with an internet consultation open to anyone who would like to provide input, followed by the establishment of an advisory council in which a limited mix of societal stakeholders (and perhaps complemented with academic experts) are invited by public officials to share their point of view. Alternatively, policymakers may first consult with a limited number of stakeholders in a closed setting (a workshop for instance) then subsequently consult with the broader public.

Key findings

Our first key finding was that open approaches were rather rare (3 out of 41 regulations). We also found that the European Commission mainly applied closed (19) and hybrid (19) consultation approaches. When using closed approaches, the Commission may only consult stakeholders through a committee of expert groups. In contrast, in hybrid approaches, we observed that multiple closed and open tools were being combined within a single policy process. An example here involves the combination of online consultations with expert committees, as well as hearings or workshops with stakeholders.

In the second part of our analysis, we focused on the relation between the two most frequently applied approaches, closed and hybrid ones, the diversity of the engaged stakeholders, and the extent to which business interests (such as firms and industry federations) were more numerous than other societal interests. Unsurprisingly, compared to closed approaches, hybrid consultation approaches (that combine open and closed tools) tended to engage a much higher amount of external stakeholders. However, this increase in participation did not automatically lead to a higher diversity of engaged societal interests. In contrast, it appears that closed approaches were characterised by greater diversity of external stakeholders and lower levels of business dominance.

Our study demonstrates that a more open approach that engages a larger number of stakeholders does not always lead to higher diversity. It seems that in order to engage a more diverse set of external stakeholders, policymakers and public officials need to play the role of gatekeeper by actively inviting specific societal interests and potentially combining multiple consultation tools. Despite governments at the national and EU levels increasingly looking toward internet consultations as a panacea for better engagement of societal voices, our findings suggest that the complexity of stakeholder engagement and political participation may require a much more active role on the part of public officials.

For more information, see the authors’ accompanying paper at Policy Sciences

Are European listed corporations short-termist? by K. Lannoo, J. Lau Hansen and A. Thomadakis | European Capital Markets Institute (ECMI)

On 7 January, the European Capital Markets Institute (ECMI) published a commentary by Karel Lannoo, Jesper Lau Hansen and Apostolos Thomadakis, named Are European listed corporations short-termist? which acknowledged that EU listed companies are increasingly focused on the short-term financial benefits of shareholders rather than long-term interests and sustainable value creation. It argues that the root causes of this behaviour lie within the regulatory framework and market practices (i.e. lack of a strategic perspective on sustainability, short-term focus of board-member mandates, and remuneration), and alleges that this will both undermine the investment capacity of firms and harm cash balances.

In response to this alleged short-termism, the EU Commission is considering a series of measures such as: harmonising directors’ duties and board composition; incentivising long-term shareholding; reducing quarterly reporting; and broadening reporting targets. The study’s conclusions were strongly contested by top academics in both the EU and the US – a challenge that was at first not matched by the relevant European professional associations.

Download the full publication here

About the authors

Karel Lannoo is General Manager of ECMI and CEO of CEPS.

Jesper Lau Hansen is Professor of Financial Markets Law, University of Copenhagen and Member of the Academic Board of ECMI.

Apostolos Thomadakis, Ph.D. is Researcher at ECMI and CEPS.

Why EU member states should take heed of the sovereignty concerns of their citizens | Europp – LSE Blog

Featured image credit: European Council

The 2016 referendum that led to the UK’s exit from the European Union raised concerns that other countries may follow suit. In a recent two-wave survey experiment, Nikoleta Yordanova, Mariyana Angelova, Roni Lehrer, Moritz Osnabrügge and Sander Renes investigated what arguments could sway citizens’ support for EU membership in a hypothetical EU-exit referendum in Germany. Reminding respondents that their country may be outvoted in EU decision-making significantly increased support for leaving the EU, while other arguments had little impact. These sovereignty concerns were particularly prominent among disengaged voters, as well as those who knew little about the EU or were already predisposed against it.

The days when member state governments had their citizens’ implicit consent to act freely in Brussels are long gone. Scientific research has taught us a great deal about the individual and contextual factors that explain variation in EU support. Still, the outcome of the Brexit referendum came as a surprise to many. What can trigger the majority of a member state’s citizens to withdraw support for EU membership? Are there arguments powerful enough to sway citizens to support leaving or remaining in the EU and, if so, what are these arguments?

Politicians can choose what information to present to voters and how to do so. They can attempt to persuade voters with new information or make existing information more salient or accessible in their minds, a mechanism called framing. We expect the effect of persuasion and framing attempts to be stronger for informational messages that are not dominant in a political context, i.e. messages to which voters are less likely to have been (recently) exposed.

In a recent article on the Brexit referendum, Matthew Goodwin, Simon Hix and Mark Pickup found evidence that supports this expectation. They showed that relatively uncommon positive campaign messages about the EU had a greater potential to affect voters’ choice in the referendum than more common negative messages – this implies that the victory of the Leave side could partially be explained by the failure of the Remain side to offer an effective campaign. The opposite can be expected in Germany, where voters have mostly been exposed to positive information about European integration during the country’s long history of EU approval. German voters might therefore be more susceptible to persuasion and framing with negative rather than positive arguments about the EU.

To test this hypothesis, we set up a two-wave survey experiment within the framework of the German Internet Panel (GIP) using a representative sample of the German population of 3,000 respondents aged between 16 and 75. In the first wave in July 2016, we asked respondents to indicate how they would vote in an EU exit referendum if it took place the following Sunday. We then asked the same question again in March 2017 after having divided respondents randomly into 9 groups and exposed 8 of these groups to a single argument each, either for or against EU membership; the ninth group served as a control.

We used economic, cultural, political, and peace/security-related arguments reflecting key aspects of the European integration project. The four positive arguments linked EU membership to economic benefits, cultural exchange and diversity, peace and security, or political influence over EU decisions. The corresponding four negative arguments associated membership with economic costs, cultural threats, security threats or national sovereignty loss.

Figure 1 summarises how the share of remainers, leavers, and undecided respondents changed in all groups between the two waves. The changes in the control group, where the share of remainers increased from 81.7% to 85.4% over time, revealed a trend toward increased support for staying. Against this trend, in the group that received a negative political sovereignty argument (reminding respondents that their country can be outvoted in the EU), the share of remainers decreased from 85.4% to 81.0%. Hence, the overall effect of the negative political argument was equal to an 8.1 percentage point decrease in support for remaining in the EU.

Figure 1: Changes in the share of remainers, leavers and unsure voters between the two survey waves across treatment and control groups

Note: For more information, see the authors’ accompanying paper in European Union Politics.

This difference-in-differences effect is statistically significant as our regression analyses confirm. When comparing the average change in intention to vote remain in an EU-exit referendum between the two waves, only the group that received the negative political argument differed significantly from the control group, exhibiting lower support for remaining in the EU (see Figure 2). None of the other negative or positive arguments had a significant effect on the citizens’ attitudes.

Figure 2: Predicted change in support for remaining in the EU between the two waves in groups treated with a negative argument versus the control group

Note: The bars represent 95% confidence intervals. For more information, see the authors’ accompanying paper in European Union Politics.

The effect of the negative political argument on sovereignty is remarkably large given the affected group received only one short argument. Moreover, we asked respondents to choose between two options of their country leaving or remaining in the EU, which presents an important and extreme decision. We therefore expect that the effect would have been even stronger if we had instead asked respondents about their general EU attitudes, such as support for further integration. We also find that the negative political argument had the strongest effect among politically disengaged citizens and those with little knowledge about the EU, as well as those with strong anti-EU attitudes. This supports expectations that people are more likely to respond to information that reinforces their prior beliefs (confirmation bias).

Our results have important implications for current debates on the future of the EU. This includes proposals to extend the use of qualified majority voting to sensitive areas such as foreign policy to prevent single country vetoes, such as the recent Cypriot opposition to sanctions against the Belarusian authorities. While member states have long lost their veto power over issues related to the single market, unanimity is still required to decide on more controversial issues such as taxation, trade agreements and foreign policy.

Moving away from consensual decisions on such issues would exacerbate sovereignty concerns. As our research suggests, this can increase public support for leaving the Union even in a country with a generally pro-integrationist position and substantial weight in the EU. The implications could be worse in Eurosceptic member states with weaker standing in the EU, who are more likely to find themselves on the losing side in EU decisions taken by a qualified majority vote. To preserve unity and prevent further EU exits, policymakers should thus take heed of citizens’ sovereignty concerns.

For more information, see the authors’ accompanying open-access paper in European Union Politics

Boris Johnson’s no deal Brexit ‘zugzwang’ | Europp – LSE Blog

Featured image credit: Andrew Parsons / No 10 Downing Street (CC BY-NC-ND 2.0)

There are now only two weeks remaining for the UK and the EU to secure a post-Brexit trade agreement before the current transition arrangements expire. John Ryan writes that whichever way Boris Johnson and his government decide to move next, it seems inevitable the process will do irreparable harm to the UK’s interests.

Zugzwang is a situation in chess in which a player is under the obligation to make a move and in which any move available makes their position worse. Because chess players are forced to move alternately, a player in zugzwang has no option but to cause their own position harm. Guided by its red lines and hard Brexit stance, Boris Johnson’s government has manoeuvred itself into a zugzwang situation.

The main expected economic consequences of a looming no deal Brexit are that WTO tariff levels will be applied to UK exports to the EU, mostly around 5%, but 10% for automobiles, which will render UK production in this sector uncompetitive, and lead to plant closures. Looming also are devastating 40-90% tariffs on exports to the EU from sheep and cattle farmers.

Consequently, EU and international enterprises that include parts from the UK in their supply chains will switch away from the UK. The UK as a location of choice in Europe for foreign direct investment in the manufacturing industry will start to be eroded by other more attractive locations in the European Union. Big international manufacturers wanting to avoid disruption to their supply chains may move elsewhere in the EU.

There are already labour shortages in the UK, for example in the NHS, agriculture, and construction. This problem will be exacerbated with skilled labour choosing other locations in the EU. There will be a further, already ongoing depreciation of the pound, reducing UK living standards, and a probable credit rating downgrade. That will push up inflation, making the country poorer. While lower rates should boost consumer and business borrowing and spending, it will probably also mean a further weakening of the pound, making imports more expensive and pushing up the cost of living even more.

A smaller economy means fewer tax receipts, which means less money in government coffers. Prime minister Boris Johnson has suggested he will spend tens of billions of pounds that the government does not have on everything from extra expenditure on defence to building a bridge from Great Britain to Northern Ireland. Markets will probably take fright – pummelling the pound yet more and making it even harder for people to make ends meet.

The UK has benefitted from respect worldwide as a place of common sense, governmental competence, a sound legal order and trustworthiness. This will be shattered, in favour of an alternative image that has long been lurking in the background, that of an unreliable partner.

The Johnson government’s reckless hard Brexit stance is also putting the union of the United Kingdom at risk. The warnings are already there. Support for a second Scottish independence referendum will grow with a no deal. Support for the reunification of Ireland will also grow as a no deal Brexit leads to renewed border controls. The EU is amazed at how Johnson’s government can be so cavalier in its attitude towards Scotland and Northern Ireland.

A no deal Brexit would mean a hard border across the island of Ireland. This would now be a border between the UK and EU – and the bloc could not guarantee that goods would not be smuggled into its market if the border were open. Now, the economies of Northern Ireland and the Republic are intertwined. People and goods – particularly agricultural ones – cross the invisible frontier frequently, often many times during their production process. If border controls are imposed, both economies will be severely damaged.

While there are many factors, the UK government is ultimately fully responsible. It wanted Brexit. It created the chaos. It created the delay. It has not done the preparation. But most of all, Johnson’s government is vastly incompetent and has limited understanding of the country’s relations with the EU or experience of trade negotiations. Very few if any of the current Cabinet ministers would have made it into Margaret Thatcher’s or Tony Blair’s cabinets. The idea that in the real world it takes time, expertise and competence to make things work has clearly not occurred to them. And that is why they are to blame and no one else is.

The failure of the UK over the past four years is to realise why the whole Brexit process has been so painful – it is the balance of power of the UK population at nearly 67 million against that of the EU at 447 million. Even without the UK, the EU has a single market comparable in size to that of the US or China. Britain has made a series of painful concessions – most notably by agreeing to a separate status for Northern Ireland, which will see customs checks on goods crossing the Irish Sea, effectively dividing the United Kingdom.

The rhetoric from the UK government under Boris Johnson has been uncompromising, ready to put the fragile peace in Northern Ireland at risk, but this approach also reveals its ignorance to the wider implications of this stance. The uncomfortable truth is that the repercussions of this reckless approach would be much wider than UK-Ireland and UK-EU relations. It would put the ‘Global Britain’ vision and with it its centre piece of a US-UK free trade agreement at risk before it has even come to life. The only certainty is that whichever way Johnson and his government decide to move next, it will cause irreparable harm.

Relaunch or disintegration? What Covid-19 means for the future of Europe | Europp LSE Blog

Credit: European Council

How might the crisis brought on by Covid-19 affect the future of European integration? Sir Michael Leigh identifies two distinct interpretations of the pandemic so far: a scenario in which Covid-19 becomes the starting point for a relaunch of the EU, and an alternative path in which the crisis precipitates the EU’s disintegration.

The Covid-19 epidemic has been a testing time for the European Union, and for much of the world. Some see it as a pivotal experience for the EU, accelerating European integration in unexpected ways. Others see the epidemic as draining power from Brussels to national capitals, as states, and even regions and cities are the prime actors in efforts to bolster public health.

Two broad scenarios for the EU’s future encapsulate these different interpretations. These are not scientific scenarios, but rather narratives about how the EU may evolve. I call the first narrative “relaunch” – it lays out a path towards greater integration, based on trends visible today. The second narrative is called “disintegration,” which points to risks that could eventually lead to the EU’s collapse.

These two stories may seem like extreme cases. But they are not artificial constructs plucked from the air for the sake of argument. The most eloquent advocate of “relaunching” the EU is French President Emmanuel Macron, with the backing of German Chancellor Angela Merkel, and with the heads of EU institutions in supporting roles. Macron’s speeches, starting at the Sorbonne in 2017, as well as the “state of the Union” addresses of the two most recent Commission presidents are packed with concrete proposals for relaunching the EU.

Predictions or warnings of collapse do not come mainly from the usual suspects – Eurosceptics and extreme nationalists – but from mainstream pro-EU leaders and indeed academics and think-tankers. Chancellor Merkel in 2010, in the midst of the financial crisis, warned that the European Union itself could fail if the euro collapsed. This year Macron and Italian Prime Minister Giuseppe Conte both predicted the EU’s collapse unless it agreed to a generous Recovery Fund. The Polish Prime Minister spoke in December of the EU’s collapse if it persists with tough rule-of-law conditionality for the budget.

To be sure, such warnings are usually tactical, and in some cases cynical, intended to push others towards accepting the speaker’s preferred outcome to a contentious issue. Still, they resonate in the media and convey the message that collapse is thinkable. The academic literature, too, is filled with “obituaries” for Europe, “Euro-Tragedies”, studies of disintegration and dystrophies of what our continent will look like “after Europe.” An ECFR opinion poll last year showed that more than half the respondents in 14 countries believed that the EU is likely to collapse within a generation, even though a majority said that they themselves supported the European project.

These contrasting scenarios or narratives about the future of Europe should be tested rigorously using evidence on public opinion, trade, investment, capital flows, data exchange, transport, and other forms of political and economic inter-penetration. But for the present, we will make a brief qualitative review of whether the EU’s response to Covid-19 tends to sustain the “relaunch” or the “disintegration” hypothesis.

Relaunch

The philosophical foundation for the relaunch scenario is a version of the Monnet method, functionalism, and the theory of spill-over. Monnet has been quoted and misquoted lately about Europe being forged in adversity. This suggests that crises – like Covid-19 – can lead to steps forward that would otherwise have been unimaginable. These steps often occur as a result of the EU’s response to the unexpected consequences of earlier decisions.

Does the EU’s response to the epidemic comfort the relaunch scenario? According to this narrative, the EU’s reaction to Covid-19 responded to new demands and took the EU into new territory. The EU’s response improved its image and strengthened public trust – despite the worrying public health and economic situation that persists today and resistance to restrictive measures in several countries.

This positive narrative recalls that the Commission reacted to the initial shortage of personal protective equipment and masks by asking member countries to desist from export bans within the single market and that they promptly complied. The Commission then launched an entirely new activity, joint European procurement of personal protective equipment, ending Chinese and Russian “mask diplomacy” and, even more importantly, it introduced EU procurement of vaccines. The EU’s role in supplying vaccines, even if poorly understood, has improved the EU’s image in most member countries.

The Commission also put forward an innovative scheme to mitigate unemployment risks in the emergency (SURE). This involves loans at rates somewhat lower than otherwise available to national authorities. Headline figures in the billions of euros convey to the media and public opinion the message of European solidarity in a time of need.

The Commission has proposed a “health union” with a new agency (European Health Emergency Response Authority) in charge of stockpiling medical supplies and the existing European Centre for Disease Prevention and Control given more resources. These changes take the EU beyond its previous limited involvement in public health, which is mainly a national responsibility, even if administrative changes themselves do not enthrall public opinion and need time to show concrete effects.

The European Recovery Fund, dubbed “Next Generation EU”, broke the taboo on euro-bonds, whether or not it marks a truly “Hamiltonian” moment. It almost doubled the EU’s proposed budget for the next seven years. These funds will be partly devoted to ambitious new environmental and digital projects, addressing current and future needs. Time will tell whether this was a one-off crisis reaction or the start of a process. Chancellor Merkel understood that fiscal solidarity was needed to hold the EU together and managed to mobilise support for this inside Germany and even from the “frugal five”, Austria, Denmark, Finland, the Netherlands, and Sweden.”

In turn, the Recovery Fund created the need for new “own resources” to service and eventually repay the debt, assumed by the Commission on behalf of the EU. If, as seems likely, these new resources take the form of an EU tax, whether on carbon emissions, digital companies, or plastics, this would take the EU into wholly new territory, an almost classic example of spill-over. The European Central Bank, too, broke new ground with its Pandemic Emergency Purchase Programme, amounting to over 7% of GDP, despite the doubts of the German Constitutional Court.

To be sure, there are legal and political wrangles concerning several of these initiatives. Hungary and Poland fiercely opposed rule-of-law-conditionality. But compromise solutions have been reached, through a typical bargaining process, with a package deal emerging in which member states feel their diverse interests are preserved.

Continuing with this optimistic narrative, Covid-19 has revived Franco-German cooperation, which had been languishing, and which used to be seen as the “locomotive” of European integration since the days of the late French President Valery Giscard d’Estaing and German Chancellor Helmut Schmidt. The Commission came forward with detailed proposals for the recovery fund and budget only after Paris and Berlin had agreed on the broad approach and amounts.

The relaunch scenario also takes sustenance from the view that Eurosceptic populists have had a bad epidemic. Migration, their core issue, has lost its edge, for now, as arrivals have fallen because of the epidemic. The Eurozone and Schengen rules, to which populists object, have been suspended. Anti-EU populists have tried to re-invent themselves as opponents of Covid-19 restrictions, with little success so far.

Public opinion across Europe approves of the EU taking new powers to deal with public health challenges and is more critical of the response at the national level. To be sure, expectations of national governments are higher than expectations of the EU, and so are more easily disappointed. In a European Parliament survey published in early December, two thirds of respondents agreed that the EU should have more competences to deal with crises like the Coronavirus epidemic, while 77% think the EU should have greater financial means.

Disintegration

The second scenario, disintegration, gives a more discouraging reading of the EU’s response to Covid-19. The narrative goes like this. EU members responded to the epidemic in disarray, each determining its own strategy, without a thought for fellow-Europeans. Initial bans on exports of masks and other PPE were quickly reversed but left a bad after-taste.

Most countries, with little or no coordination, chose their own suppression strategies – using lockdowns – but Sweden, the Netherlands, and the UK (then still part of the single market) vacillated, under the influence of herd immunity notions. Countries and regions adopted their own lockdown rules, their own border closures, their own easing of restrictions over the summer, their own second wave restrictions, and their own rules for the 2020/2021 winter holidays, with little effective coordination or exchange of best practice.

This second, more pessimistic narrative argues that three of the EU’s pillars have been shaken by Covid-19: Schengen (border closures), state aid rules, meant to ensure fair competition, and the Stability and Growth Pact, which remains the core set of macroeconomic rules for eurozone members

The suspension of the usual rules in these three areas is supposed to be temporary and in line with escape clauses, but many in Europe recall the French adage that “only the temporary is permanent.” Few tears will be shed about the shelving of the stability pact (that Romano Prodi once called “stupid”). But, in this more pessimistic narrative, Germany’s massive use of state aid, drawing on its large surpluses, distorts competition and widens divergences in the single market.

A strong recovery fund is needed to restore a level playing field. But the disintegration narrative sees shortcomings in the financial underpinning of the EU’s response to Covid-19. The Recovery Fund is considerably diluted compared with the original Franco-German proposal. The grant element is now little more than 300 billion euros out of the total figure of 750 billion euros, including loans.

In any event, the attraction of the loan element is limited, given historically low interest rates. The headline figure of 1.8 trillion euros for the Recovery Fund and 7-year budget was reached only by cutting innovative, future oriented spending (such as science, research, education, transport, and development assistance).

The fight over Poland and Hungary’s rejection of rule-of-law conditions for the recovery fund and budget as well as the eventual compromise, intended to hold the Union together, tarnishes the EU’s image. In this narrative, Eurosceptic populism has been, at best, dormant during the epidemic. Democratic shortcomings in several member states call into question the EU’s legitimacy and reduce its credibility as a normative power.

Implications

Overall, and despite the continuing public health and economic crisis, the positive account of the EU’s response to Covid-19 is more convincing. At first it seemed that the epidemic would marginalise the EU, because of predominantly national responsibility for public health. But many governments now see the EU’s role as indispensable as they struggle with their own governance problems between regional and central authorities, and face unemployment, increasing income inequality and rising national debt.

The EU closes the year committed to a degree of fiscal solidarity that would have been unimaginable before the epidemic. This also translates into a higher level of public trust, though divisions in attitudes towards the EU persist. In its budget discussions, the EU at last faced up to the problem of democratic backsliding, albeit with a compromise formula on rule-of-law conditionality that must prove its effectiveness.

This brief informal review of the EU’s response to Covid-19 also makes clear that the integration versus disintegration debate is based on a false dichotomy. The dichotomy arises from the now somewhat dated view that any development should be judged by whether it is a step towards or away from an “ever-closer union.” The dichotomy is expressed in the classic but now outmoded metaphor of the man on the bicycle who must keep peddling faster or fall off. As my colleague Erik Jones has put it:

The mistake is to believe that European integration − or any integration, for that matter − is either yes or no, forward or backward, progress or regress. Integration and disintegration can take place at the same time.

Our two scenarios both contain elements of truth and confirm that integration and disintegration may occur simultaneously. It is hard to predict which will predominate in the medium-term. Any complacency about the EU’s performance would be out of place, with many Europeans still suffering, economic prospects muted, unresolved issues remaining, and Eurosceptics casting around for their best line of attack. But the evidence suggests that Covid-19 may turn out to be a salutary shock for the EU, obliging it to set aside certain doubtful and divisive procedures and to focus on those policy areas that address the urgent needs of the population as well as critical global challenges.

Creating a common safe asset without eurobonds, by A. Thomadakis and W. Boonstra | European Capital Markets Institute (ECMI)

On 7 December, the European Capital Markets Institute (ECMI) published a policy brief by Apostolos Thomadakis and Wim Boonstra, named Creating a common safe asset without eurobonds, which acknowledged that Europe needs a capital market that is sustainably integrated and as single as possible.

The authors highlight that this will not be achieved without a broad and solid foundation. The international position of the euro is stagnating close to historical lows, while the lack of a European-wide common safe asset highlights the fragmented nature of national government bond markets. Although collective issuance of government debt by member states through eurobonds seems to be unattainable for political reasons, there are other ways to arrive at a common safe asset. Debt issuance by the European Central Bank (ECB) and the European Union could play a constructive role here. By financing the European budget through bond issues and at the same time allowing the ECB to issue short-term money-market paper, Europe could tackle multiple challenges in one fell swoop.

Download the full publication here

About the authors:

Wim Boonstra is Senior Economist at Rabobank, and Professor in Economic and Monetary Policy at VU University Amsterdam

Apostolos Thomadakis, Ph.D. is a Researcher at ECMI

The Biden presidency is a last call for Europe, by K. Lanoo | CEPS

Image credits: European Parliament

Official visit US Vice President in 2015 Credits: European Parliament

The presidency of Joe Biden heralds an opportunity for Europe, and more particularly the EU, to revive its relationship with the US. But it may also be its last chance. The EU will have to demonstrate tangible progress in the areas of defence, trade and global policy stances generally to ensure the good will of the new American administration.

After very strained EU-US relations over the past four years, the election of Biden and his early statements have produced a huge sigh of relief among many policymakers in the EU, and Europeans at large. The stances of President Trump and his closest advisers were unprecedented in the history of transatlantic relations:  from the open attacks on the EU and some of its leaders, to support for extreme-right Eurosceptic parties and governments, and threats and attacks on the security and trade front.

To some degree, the Trump administration was only pointing to issues others had already raised tacitly before: the asymmetries on many levels in the transatlantic relationship had to end. Europe has sheltered for too long under the security umbrella of the US, and not taken enough responsibilities of its own. Despite warnings that date back to the end of the G.W. Bush administration, defence budgets have hardly increased (see the Dutch Advisory Council on International Affairs (AIV) report). On the goods trade side, where the EU has a huge surplus of more than €150 bn (2019), the US often applies lower tariffs on EU imports than vice versa. The obvious example is the most important EU export product, cars, where the US places a 2.5% tariff on EU vehicles, while the EU applies a 10% on US ones. This has insulated the EU market from competition, which is why it is behind others on electric cars, for example.

The US security umbrella has already folded in Europe’s south-eastern neighbourhood, and will not reopen, nor has it been replaced by European security. Notwithstanding the calls for a geopolitical Commission, Europe has been absent while Russia, and in the second instance Turkey, is becoming the hegemon in the region. As Russia brokered deals in Armenia, Syria (Idlib) and Libya, and extended its influence, Europe was nowhere to be seen. The void left by the retreat of the US has been filled by a former Cold War enemy.

Europe’s precarious security situation became apparent under Trump; without NATO it has no real  actionable security or crisis intervention structure, and is thus very vulnerable without the US. Most recently, EU plans for a more advanced security cooperation (PESCO), started under the previous legislature, have been overshadowed by uncertain proposals to include the UK’s defence capacity in a structure above the EU, in a European security Council. In the meantime, taken collectively, European member states that are allies of NATO do not meet the 2% defense spending as a percentage of GDP objective set by NATO, but stick on average to around 1.6%. This means that Europe lacks core operational capacities, such as the air transport capacity to move troops to crisis-hit regions, for example. EU countries should agree urgently on a division of competences and local specialisation, as part of a European defence agenda, as the Dutch Council for International Affairs argued in its recent report. The EU will only be taken seriously by the US – and also by President Biden – if it takes on more tasks itself.

On the trade front, it will take a long time to re-establish EU-US cooperation to the level where Obama left it. Biden has not yet mentioned TTIP as one of the engagements he would restore, although he will allow the WTO to function again. In the meantime, the EU has advanced with important bilateral trade deals, most importantly with Japan, but also with Canada and Mercosur, while specific trade agreements with China are progressing, such as an investment agreement. The current US Trade Representative, Robert Lighthizer, saw this web of bilateral trade deals as the resurrection of “the system of colonial preferences that prevailed in the pre-GATT era”. These deals do not advance liberalisation, he argued, but force countries to adopt protectionist measures such as ‘geographic indications’. WTO member states should therefore recommit to market reform and most-favoured-nation status, he advised in a piece in the WSJ in September. This is what Biden has already announced, to remove Trump’s tariffs and bring the WTO back to the centre, which the EU should be fully aware of.

Looking at it from an economic standpoint, the incoming administration may take a pragmatic approach: it will restore good old relations with Europe, but will turn to where the gravity is shifting: Asia. In the share of the global GDP weighting, the EU continues to lose ground, the US remains in the lead, while China is advancing. These trends are accelerated by the Covid-19 crisis, which has highlighted our dependence on US big tech. This puts Europe in a dire position with its digital tax, where the only solution is a global one for effective taxation in the realm of the OECD.

The EU will thus need to watch out in the coming weeks and months that it fulfils its side of the bargain in relations with the US, and make genuine commitments on the security and defence side, also by advocating a truly open trade agenda in line with the WTO commitments, to boost its competitiveness.

The EU will need a permanent structure for regular interaction with the US, as is the case for its other most important trading partners. Many attempts were made in the past, such as the Transatlantic Economic Council (TEC), but with limited success. Given Europe’s declining importance as an economic power, this is its last chance, also because more US-centred administrations will come back in the US. Yet another reason for the EU to overcome its perennial divisions, get its act together and assume its rightful role in the world order.

About the author

Karel Lannoo has been Chief Executive of CEPS since 2000, Europe’s leading independent European think tank, ranked among the top ten think tanks in the world. He manages a staff of 70 people. Karel Lanoo was an Independent Director of BME (Bolsas y Mercados Españolas), the listed company that manages the Spanish securities markets (2006-18) and is a member of foundation boards and advisory councils. He has published several books on capital markets, MiFID, and the financial crisis, the most recent of which is The Great Financial Plumbing, From Northern Rock to Banking Union, 2015. He is also the author of many op-eds and articles published by CEPS or in international newspapers and reviews. Karel is a regular speaker in hearings for national and international institutions (the European Commission, European Parliament, etc.) and at international conferences and executive learning courses.