Opinion & analysis

Analysis | Democratic backsliding as a collaborative project: Understanding the links between Fidesz and Law and Justice, by A. Holesch and A. Kyriazi | Europp – LSE Blog

[Copyright: European Union]

The Hungarian and Polish governments have frequently been accused of backsliding on democratic standards and the rule of law. Drawing on a new study, Adam Holesch and Anna Kyriazi argue that a much overlooked factor in this debate is the extent to which both governments have collaborated in their efforts to revise democratic institutions and norms.

Hungary and Poland have registered a sharp decline in democratic quality over the last decade. According to Freedom House, there has been a continuous fall in democratic indicators in Hungary since 2010, and in Poland since 2015. In 2020, Freedom House demoted Hungary to the status of a ‘transitional or hybrid regime’ and Poland to that of a ‘semi-consolidated democracy’. In both countries, a methodical dismantling of the institutions and norms sustaining democracy has been orchestrated by right-wing nationalist governments: Fidesz in Hungary, and Law and Justice (PiS) in Poland.

Figure 1: Freedom House democracy score in Hungary and Poland from 2010-2020

Note: Figure compiled by the authors using the Freedom House Nations in Transit reports. A lower score indicates a lower level of democracy.

In a recently published study, we argue that these two processes have not simply coincided in time, but have, in fact, intersected: Hungarian and Polish political leaders have systematically relied on each other to keep their backsliding projects going, even in the face of strong countervailing pressures. We argue that while it is domestic factors that put a state on a path toward backsliding, international cooperation can contribute to maintaining this trajectory.

Hungary and Poland’s ‘backsliding coalition’

The most consequential use of the Hungarian-Polish coalition was to reduce the EU’s sanctioning power. For this to succeed, the two partners took advantage of the design of the EU’s rule of law framework, above all the Article 7 procedure, which requires unanimity in the European Council as a precondition to take any meaningful sanctions. Even though the affected member state loses its voting rights under this procedure, the veto of only one other member state government can halt the process.

Consequently, whenever the Hungarian and Polish governments have faced the possibility of severe consequences for breaches of the rule of law, they have resorted to reassuring each other of a protective veto. For example, as soon as potential sanctions were threatened against Poland’s PiS-led government by the EU in 2015, Hungarian Prime Minister Viktor Orbán was quick to declare that ‘it was not worthwhile for the EU to think about imposing any sanctions on Poland, as this would require full agreement, and Hungary will never support sanctions against Poland.’

Indeed, PiS and Fidesz politicians have consistently shielded each other against EU actions every step of the way, both through discourse and actions (e.g., voting in the European Parliament). What is less well-remembered is that the liberal Civic Platform (PO) party of Donald Tusk supported the Fidesz government in the early 2010s, perhaps failing to grasp the full extent of Orbán’s backsliding ambitions. In 2012, then Prime Minister Tusk defended the Hungarian government against EU criticism, saying:

‘Hungary is not only our friend but a country in a similar situation as we are. It is in the interest of Warsaw that Brussels does not treat the “new countries” of the Community as younger, poor brothers. And does not discipline them like school kids, when – in its opinion – they are starting to depart from European values.’

Learning and domestic legitimation

Beyond mutual support at the EU level, the two coalition partners have relied on each other in different ways, adjusting their cooperation to their specific interests and opportunities. One form of this is learning. Above all, Law and Justice was eager to learn from Fidesz. As early as 2011, following the party’s loss in that year’s parliamentary election, PiS leader Jarosław Kaczyński famously claimed that he was ‘convinced that one day, we will have Budapest in Warsaw.’ Once in power, PiS adopted practices and tactics that echoed those taken by its Hungarian counterpart. The most relevant were attacks on the rule of law, and specifically independent courts, but PiS also drew influence from ‘reforms’ pursued by Fidesz in the fields of media control and the electoral process.

The other prominent form is domestic legitimation. Given that Hungary was the frontrunner in the backsliding process in the EU, the Fidesz-led government was particularly interested in strengthening its legitimacy in the domestic arena. When sympathetic right-wing Polish politicians offered praise and support for the actions taken by Fidesz, often in joint appearances, speeches or interviews, these gestures were showcased by the Hungarian government as evidence that its measures were not only perfectly legal and justified, but also desirable. Such symbolic acts, typically accompanied by evocative political discourse, were then fed into the Hungarian pro-government media and disseminated to the public.

Nevertheless, the existence of this backsliding coalition does not presuppose that the two partners use it in the same way, nor that they agree on every policy issue all of the time. There are instances where there has been a conspicuous failure to support the other partner, such as when the Hungarian side refused to vote against Donald Tusk’s second term as European Council President, and PiS was left alone in fighting the nomination. The Hungarian government’s entanglements with Russia (mainly, but not only in the field of energy) have also been a source of discontent on the Polish side.

Key drivers

Both the Hungarian and Polish governments have promoted an identity-based narrative to justify their collaboration, namely, the trope of historic Hungarian-Polish ‘friendship’ between two likeminded nations. It is indeed true that there are some commonalities and intersections between the political histories of the two countries, expressed stereotypically in the phrase: ‘A Pole and a Hungarian, two good friends, they fight and drink together’. But both governments have constructed and disseminated a vastly overstated version of this purported bond, making ‘friendship’ the most recognisable discursive element of the Hungarian-Polish coalition. This makes for a powerful narrative to be mobilised against the EU, as the following quotation from a speech delivered by Viktor Orbán in 2019 makes clear:

‘When Poland is attacked from Brussels, the attack is against the whole of Central Europe – and us Hungarians. To empire-builders who seek to cast their shadow over Central Europe, we have this to say: they will always need to reckon with the strong bonds between Poland and Hungary.’

In truth, ideology, interests and institutions are much better placed than identity to explain this coming-together. The backsliding coalition was born out of the ambitions of political leaders who espouse similar ideologies and who have found collaboration useful for their projects. Despite the identitarian and value-based discourse that they often deploy when they refer to their relationship, its use has been quite opportunistic, especially on the Hungarian side. The EU’s own decision-rules have, to some extent, driven coalescence dynamics, too, as the requirement of unanimity for adopting any meaningful sanctions incentivises the construction of a narrow pact rather than broader support for one’s cause. This leaves us with a question: could backsliding coalitions become a permanent feature of the EU’s multi-level structure?

For more information, see the authors’ accompanying paper in East European Politics

Commentary | Strategic autonomy or strategic alliance?, by Maria Demertzis | Bruegel

It is hard to imagine how either the EU or the US can do better on the big issues if they pursue their interests separately.

On the day of the United States presidential inauguration, European Union leaders lost no opportunity to express relief that the world hegemon was back, ready to cooperate and help solve common problems.

But the truth is that, during the last four years, the world has not simply stopped and waited for the US. The EU in particular took important steps in understanding the importance of strategic autonomy. Pushed by the uncooperative Trump administration, the EU pursued bilateralism, aiming to protect its own interests.

This pursuit of strategic autonomy by the EU is de facto an attempt to separate from the US. The big question now a new US president is in place, is whether we need to continue such a pursuit.

The answer to this question should depend on how aligned the new US administration will be with the EU on fundamental issues. There is great scope for the two to align on climate change and on how to fight the pandemic. However, there is also scope for significant disagreements.

The most obvious is how to deal with big tech companies that are considered to have acquired too much power to the detriment of good economic outcomes. In particular, given their global nature, it is not clear how to tax the services these companies provide.

The EU appears a lot more decided on this. The European Commission in December issued a draft law, the Digital Markets Act, in which it proposes to monitor and ultimately prevent the built up of power for those big digital firms. What is interesting about this proposal is that it is extra-territorial in nature: it applies to all firms operating in the EU irrespective of whether or not they have a physical presence in the EU. This was a necessary feature or otherwise the Act would not capture the big firms, which are all non-EU based. But it also creates the impression that the EU is looking to attack US firms, a fact that will not sit well with the new administration.

If regulation is about controlling the size of big firms, taxation is about redistributing their profits. After many attempts to coordinate, at the Organisation for Economic Cooperation and Development (OECD) level, President Trump withdrew from international tax negotiations in the summer of 2020. The French authorities have repeatedly argued that if there is no agreement at the international level, they will unilaterally tax the big technology groups. The US considers this an unfair practice as, again, it affects largely US firms and has threatened retaliation. With the transition to a new administration, the two sides have called a truce and have agreed to discuss again within the OECD multilateral taxation framework. This will be the first challenge for the new OECD leadership.

And then, there is of course China. The change of administration in the US will not change its policies towards China. If anything, the Biden administration will seek to strengthen the US stance by calling a “democracy summit”: a place where like-minded countries meet to form a front against China. The EU, on the other hand, is very reluctant about this and insists that it does not want to take sides, preferring instead to maintain a very transactional relationship with China. Public opinion in the EU is turning increasing unfavourable but also recognises that China is the world’s biggest economy. But while the EU could afford to play the waiting game when the US administration was perceived to be unreasonable, fence-sitting will be a lot more difficult with a much more amicable President.

So, when it comes to concentration of market power in big tech companies the EU is clear on how it wants to proceed. The US is less clear. On China, the US is very much decided on the level of antagonism it wants. But the EU hesitates.

But while economic interests may not be always aligned, there is much more at stake than economics alone. It is hard to imagine how either the EU or the US can do better on the big issues if they pursue their interests separately. The new US administration provides an opportunity to restore not only what the previous administration so carelessly risked, but to advance on issues that will reduce divisions in an ever-more divided world.

On the 20th of January, Council President Charles Michel talked about a “Europe that plays a stabilising and constructive role …in line with our true weight in the world….” But true weight comes with building strategic alliances.

About the author

Maria Demertzis is Deputy Director at Bruegel. She has previously worked at the European Commission and the research department of the Dutch Central Bank. She has also held academic positions at the Harvard Kennedy School of Government in the USA and the University of Strathclyde in the UK, from where she holds a PhD in economics. She has published extensively in international academic journals and contributed regular policy inputs to both the European Commission’s and the Dutch Central Bank’s policy outlets.

How government spending shapes the Eurozone economy | Europp – LSE Blog

Featured image credit: European Central Bank (CC BY-NC-ND 2.0)

The question of how fiscal policy affects the Eurozone economy has received substantial attention over the last decade. Drawing on a new study, Ricardo Duque Gabriel, Mathias Klein and Ana Sofia Pessoa use a novel regional dataset to estimate the effect of fiscal stimulus on factors such as private investment, productivity, consumption and real wages.

How does fiscal policy affect the Eurozone economy? Over the last decade, this topic has gained renewed attention among academics and policymakers alike. As the main policy interest rate of the European Central Bank (ECB) has reached its lower bound, for instance, commentators have frequently asked for more fiscal actions to stimulate the economy. In one of his last press conferences, parting ECB President Mario Draghi stated that it is now “high time I think for the fiscal policy to take charge”.

Large-scale fiscal consolidation packages and dismal growth performances in southern European economies have raised tensions between core and periphery countries about the adequacy and usefulness of austerity programmes. Moreover, motivated by the close trade linkages among member states of the European single market, there is particular interest in how fiscal interventions spill over from one region to another. Finally, the Covid-19 rescue package implemented by the European Commission makes it evident that a better understanding of how changes in government spending influence the Eurozone economy is urgently needed.

In a recent study, we address these important questions by providing new empirical evidence on the economic impact of fiscal policy and its transmission mechanisms in the Eurozone. In particular, we rely on a novel dataset provided by the European Commission and use regional variation in government spending to estimate how fiscal policy shapes the Eurozone economy.

Figure 1 below shows our main results concerning the impact of government spending on output and employment. The estimates reveal a cumulative output multiplier of 2.9 (see left panel of Figure 1), which implies a €1.9 increase in relative private sector production for every €1 increase in relative government production. Moreover, changes in regional government spending have sizeable effects on local labour markets, indicated by the employment multiplier in the right panel of Figure 1. Furthermore, the estimates imply that a €1 million increase in government spending creates 42 new jobs four years after the fiscal stimulus or, in other words, a cost per job created of about €24,000. Interestingly, the lion’s share of these additional jobs is created in the private sector. Overall, these results suggest that fiscal policy is an effective tool for raising regional activity in the Eurozone.

Figure 1: Output and employment multipliers

Note: For more information, see the authors’ accompanying paper, published as part of the Sveriges Riksbank Working Paper Series.

Our evidence also points towards strong positive supply-side effects of government spending changes. We find a significant boost in private investment which can be rationalised by a strong and persistent rise in labour productivity and total factor productivity. Thus, discretionary fiscal policy seems to be a powerful instrument in stimulating private investment activities and leads to productivity gains. Furthermore, the fiscal stimulus induces a significant rise in durable consumption together with higher real wages and an increase in the labour share. The latter indicates that there might exist a redistribution of income towards workers after a fiscal expansion. In sum, these results point towards a strong private crowding in following a fiscal spending expansion.

Moreover, our results highlight the role of important heterogeneous effects of government spending across industries, states of the economy and member states. First, we find that multipliers are larger in the construction and industry sectors, whereas the impact of a change in regional government spending is somewhat lower in the services and financial sectors.

Second, fiscal policy is more effective for stimulating economic activity and employment during economic recessions than during economic booms. Given the significant amount of economic slack in the current pandemic situation, this finding suggests that the fiscal rescue package implemented by the European Commission should be associated with larger positive economic effects than during normal times.

Third, in the core countries of the Eurozone, government spending can spur economic growth significantly more than in the periphery countries. The political and legal system, the labour market and pricing frictions or financial developments are all potentially responsible for the differences between these groups of countries.

Finally, deep regional integration within the European single market has raised particular interest in how fiscal stimuli spill over from one region to another. In particular, in the presence of positive fiscal spillover effects, regions with ample fiscal capacity could use additional fiscal stimuli to boost demand from regions facing substantial economic slack. Although the close trade linkages across European regions within the European single market might suggest strong spillover effects, our estimates reveal only small (and mostly insignificant) fiscal spillovers.

This new empirical evidence should contribute to discussions among academics and policymakers about the gains and limitations of fiscal policy in the Eurozone. In particular, the results suggest that fiscal policy is an effective tool for stimulating regional output, employment, investment, and productivity. Furthermore, despite the deep regional integration within the Eurozone, increased public spending in regions with ample fiscal capacity might have only small spillover effects. Finally, heterogeneous effects across states of the economy and member states should be taken into account when designing adequate stabilisation measures.

For more information, see the authors’ accompanying paper, published as part of the Sveriges Riksbank Working Paper Series

Opinion | The world is becoming less stable. To fix it, we must learn how to work together again, by Børge Brende | World Economic Forum

Børge Brende warned on “global risks that were once on the horizon are now at the doorstep” in an editorial  for the World Economic Forum Annual Meeting. The WEF President also highlighted that “achieving results on climate change, the economy, and technology is only possible if we adapt to the current global reality” and summoned stakeholders at every level must to find ways “to take meaningful multilateral action amid uncertainty and in the face of strong unilateral headwinds”.

Read the full article here

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.

Read the full article here


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