Threat or opportunity?

The German-led calls for an IMF-style bailout fund for the EU have caught most people on the hop, including the French, and the lack of detail suggests that the practicalities are only now being worked on inside the German Finance Ministry.

French officials have said that there are two fundamental issues still up for debate: whether the European Monetary Fund would cover only the eurozone or all of the EU’s 27 member states, and whether the EU treaties should be amended to create the fund. Plainly, there is a long way to go before the EMF gets off the ground and the current debates are highly speculative.

But as far as the first question goes, if the proposed EMF were to include all 27 member states, rather than just the eurozone, this would obviously have significant implications for the UK as British taxpayers would be asked to underwrite other EU governments’ debts. It would also draw the UK into a system of EU ‘economic government’ that would potentially give the EU greater powers to interfere in monitor the Government’s handling of the economy.

For both of these reasons, any UK government is likely to stay well clear of any participation in the EMF.

The second issue, over whether an EMF would require treaty change, is far from clear but there are a few hypothetical scenarios.

Paris appears cautious about any proposal for an EMF that would require treaty change. French Finance Minister Christine Lagarde reportedly said that “Other avenues should be explored” that are in line with the existing Lisbon Treaty. This suggests one of those creative legal EU solutions which confuses everyone (possibly involving the Lisbon Treaty’s ratchet clause which allows for amendment of the Treaty without it being considered an actual treaty change).

However, Chancellor Angela Merkel yesterday made it clear that she thought that the creation of a bailout fund would certainly require changes to the EU treaties. “Without treaty changes we can’t form such a fund,” she said. And given that it would amount to a breach of the current ‘no bailout’ rules in the treaties, it is hard to argue with her.

Commentators are already suggesting that new EU treaty negotiations would present both Labour and the Conservatives with big problems. Gordon Brown promised MPs that after Lisbon there would not be any institutional changes in the next Parliament:

I can confirm that, not just for this Parliament but also for the next, it is the position of the Government to oppose any further institutional change in the relationship between the EU and its member states. [Hansard, 22 October 2007]

Similarly, the Conservatives announced last year that they would give voters a referendum on future transfers of power to the EU.

However, depending on how this plays out, an EMF that didn’t include the UK could actually present the UK with a sizeable bargaining chip, particularly a future Conservative government. Treaty change would require the Government’s consent, whether the UK is involved in the EMF or not. In other words, this could be an opporunity for an incoming Conservative government.

The Conservatives have said they want to renegotiate areas of the UK’s membership, notably opt-outs from costly EU employment regulation and intrusive justice and home affairs legislation. In addition, an incoming UK Government has a lot of work to do on the EU budget and the single market issues, including financial legislation.

There is possibly a deal to be done here – the Tories could say “we’re happy for you to go ahead with the EMF and closer economic integration of the eurozone as long as we get what we want in return.” In Cameron’s own words, it would be the ideal opportunity to argue and demonstrate “that European integration is not a one way street and that powers can be returned from the EU to its member countries”.

The tricky issue is of course that the Conservatives’ promised - or at least are now percieved to have promised - that any siginficant treaty change leading to further integration would trigger a referendum in the UK. And the establishment of an EMF would be a big change, as it would create a whole new EU institution and a lender of last resort at the EU-level. This, in turn, is a clear step towards fiscal federalism, regardless of whether the UK takes part.

At the same time, if not involving Britian at all, the argument can be made that it does not involve a transfer of powers from the UK to the EU per se, and therefore that there is no need for a referendum. Indeed, if put in the right context, it could be presented as a method of regaining powers from the EU.

The critics were quick to say that Cameron’s policy was unrealistic and undeliverable, but if the proposal for an EMF gains speed he may be presented with an early opportunity to prove them wrong.

If all the pieces fall into place, he should take it.

Merkel backs IMF-style fund for eurozone

More news on the eurozone front this weekend as we learned that France and Germany are preparing plans for an IMF-style European Monetary Fund (EMF). German Finance Minister Wolfgang Schäuble has said he will “present proposals soon” for a new eurozone institution that has “comparable powers of intervention” to the International Monetary Fund.

Schäuble has today received backing from his Chancellor, Angela Merkel, who said, the EU’s current tools “are not sufficient.” She added, “The European Union must be able to respond to the challenges of the moment” and if establishing an EMF required revising the EU treaties it would be a price worth paying becasue “we’re saying we want to solve our problems ourselves.”

However, it seems that the German government may meet strong resistance from the German political and economic establishment. Juergen Stark, a German Executive Board Member at the European Central Bank, has chosen to write in tomorrow’s edition of Handelsblatt that “Such a mechanism would not be compatible with the principles of the monetary union”. He has also warned that “public acceptance of the euro and the European Union would be undermined.”

Stark’s column argues that establishing an EMF would risk over-politicisation and further increase the eurozone’s susceptibility to ‘moral hazard’ or free-riding from certain member states. “Countries which have not abided by the rules, which profit unilaterally from the euro, without taking their duties seriously, should not be rewarded,” he writes.

Given Merkel’s obvious unwillingness to sign up to any Greek bailout, such public support for the EMF proposal is a little surprising. Given that Germany would be the biggest contributor to such a fund, surely it amounts to a very similar thing: a German guarantee for the eurozone.

Certainly one to watch…

Taxing questions

The EU’s new Taxation Commissioner Algirdas Semeta has announced that he is planning to revive previously shelved plans for an EU-wide carbon tax, aiming to set a minimum levy of €10/tonne of CO2 emitted (although the exact level is a bit unclear) from energy sources such as petrol, coal, and natural gas when they are used as motor and heating fuel, or to produce electricity.

Based on the Commission’s previous proposal we’ve calculated that such a tax would cost the UK economy at least £3.2bn a year. This cost will hit poorer consumers and small businesses disproportionately hard.

Is the cost worth it? Well, a carbon tax can, and has worked in some member states - Sweden being the most conspicous example (the country has cut carbon emissions by 9% since introducing a carbon tax in 1991, while the economy has grown by 48% during the same time period). Unlike the EU’s flawed Emissions Trading Scheme, a carbon tax would create a firm price on carbon (although still largely arbitrary) and ensure that polluters have to pay rather than being rewarded. This, in turn, would provide a strong incentive to switch to, and invest in, green energy. If replacing other, poorly targeted, CO2 policies a carbon tax could be the right way to go.

But apart from this discussion, the proposed tax raises two further important issues.

Firstly, why an EU-wide harmonised tax? We must remember that the EU already has all manner of climate change policy instruments playing different tunes. It has an extensive cap-and-trade system for large emitters of CO2, such as power generators and heavy industry. It has heavily prescriptive renewable energy targets and biofuel targets (the latter of which even the Commission now admits might be a mistake). It also has various other environmental regulations restricting emissions such as the Large Combustion Plant Directive, which will force the closure of nine of the UK’s power plants by 2015.

Those in favour of an EU-wide tax say that it must be harmonised across Europe in order to avoid ‘distortions to the Single market’. However other countries, Sweden for instance, have successfully implemented a domestic carbon tax without any detrimental impact on their economies.

But more importantly, if the stated end goal is not EU tax harmonisation in and of itself but emissions reduction, all that really needs to be decided at an EU level is the extent of the emissions reduction targets. As for the means, who cares? The job of meeting these targets should be left up to member states, who are best equipped to devise a policy mix tailored to their individual circumstances - and when it comes to energy, these are often very diverse.

A carbon tax may be a cost-effective option, or it may not. But it should not be the European Commission’s job to decide.

This leads us to the second issue. There are understandable concerns that the Commission has an ulterior motive for its carbon tax. While the current proposal would see member states collecting the revenues from any tax, such “eco taxes” have long been seen by many within the Commission as a way of directly financing the EU budget - a view shared by EU President Herman Van Rompuy.

If such a carbon tax were established, it would clearly create an obvious focal point for those calling for an EU funding stream that bypasses member states’ treasuries, with the ultimate aim being a direct tax.

All the more reason to follow a pragmatic approach that concentrates on the stated aim of cutting emissions at the lowest cost to businesses and consumers, rather than creating yet more centralised and complex EU rules that limit member states’ ability to tailor climate change policies to their own needs.

The Karlsruhe factor

As riot police today were forced to use tear gas against violent crowds in Athens protesting against further Greek spending cuts to narrow the country’s budget deficit (and save the eurozone), we recieved another reminder of German opposition to any cross-border rescue operation.

Travelling to Germany today to meet with German Chancellor Angela Merkel, Greek PM George Papandreou insisted that Greece is not seeking money from the EU. According to Le Monde, German Economic Minister Rainer Brüderle said in response: “Papandreou has said that he doesn’t want a cent. In any case, the German government will not give a cent”.

Meanwhile, German daily FAZ looks at another obstacle to a Greek bailout: the German Constitutional Court. Based in Karlsruhe, this Court is very much the X-factor in EU integration, as evidenced by the extrordinarily sceptical ruling it delivered on the Lisbon Treaty. Apparently, a spokesperson for Angela Merkel has let it slip that the Chancellor privately fears that a bailout would provoke the country’s Constitutional Court to take action, possibly blocking the whole operation. It’s article 32 of Germany’s “Law on the Federal Constitutional Court” (Gesetz über das Bundesverfassungsgericht) that is the sticking point.

This article says that,

In a dispute the Federal Constitutional Court may deal with a matter provisionally by means of a temporary injunction if this is urgently needed to avert serious detriment, ward off imminent force or for any other important reason for the common weal.

In plain English, a bailout operation of Greece could become Karlsruhe territory. Specifically, the Court could interevene against what it considers a breach of the law - in this case the EU Treaties’ ban on bailouts and extending credit lines to other member states.

Former federal judge Paul Kirchhof is quoted by FAZ saying that “If parliaments and MPs feel that their rights have been violated, they can appeal to the Constitutional Court.” Based on such an interpretation of Article 32, notes FAZ, the Karlsruhe judges can block Merkel if she decides to help financially.

All of this is speculation of course, but an interesting indication of the forces at work in Germany at the moment - and the massive opposition that a bailout could provoke.

Great clunking fist

A BBC documentary has revealed that Londoners will not benefit from a “pre-sale” of tickets for the Olympic games thanks to EU competition law, which prevents discrimination in favour of the host country. Despite having swallowed the increases on their council tax since 2006 in order to fund the games, Londoners will apparently have to battle it out with 500 million Europeans for coveted games tickets.

International Olympic Committee President Jacques Rogge has said he is powerless to intervene, but helpfully suggested that the UK’s European neighbours, especially France and Germany, would snap up the tickets, ensuring seats were filled.

As London Assembly Member Dee Doocey put it, “it’s called European law and there’s nothing you can do about it”.

Favouring the host nation/side in ticket allocations is a long established principle in all manner of sporting fixtures, but is evidently not a principle that escapes the application of the great clunking fist that is EU competition policy.

Setting a good example

Amid gloomy economic news about the state of Greece’s public finances and impending austerity measures, former MEP and Greek singing legend Nana Mouskouri has today said she will donate her pension from her time as an MEP (1994-1999) to the public coffers to help Greece tackle its debt crisis.

At around £23,000 a year, it won’t bring Greece’s debt levels to within the 3% GDP required by the EU’s Growth and Stability Pact all on its own, but is a response to calls for wealthy Greeks to contribute more money to the national treasury in the current crisis.

Amid never-ending examples of how the European Parliament wastes taxpayers’ money, and MEPs voting for endless increases to their allowances, it’s nice to see that not everyone goes to Brussels to climb aboard the gravy train and milk it for all they can get (for those who find it hard to believe see last year’s blog piece on Swedish MEP Jens Holm donating his travel expenses to charity).

MEPs have a long, long way to go to arrest citizens’ declining faith in the European Parliament, but if more took the same approach as Jens Holm and Nana Mouskouri it would make a start.

Waking up to smell the coffee

As the eurozone’s flaws and weaknesses continue to manifest themselves in the midst of the Greek crisis, the appetite for the euro in Europe’s far north is dminishing. In Denmark, the government has been forced to kick a referendum on the country joining the euro into the long-grass, following objections from Danish unions and others over the state of the euro - and in particular the Commission’s instant new powers to meddle in negotiations on pay between national social partners (a clear no-go zone for Scandi unions).

And in Sweden, citizens have done a bit of a U-turn: a poll for Swedish Television shows that 50% of Swedes are now against the country joining the eurozone, with 39% in favour and 11% undecided. When the same question was asked in April 2009, 47% were in favour of joining the euro, while 45% were against. Changing sentiments in other words. And who can blame them? The Swedish krona is on the move and more and more commentators are acknowledging that the country has benefited from staying outside the eurozone (benefits which include an annual windfall profit of SEK 30bn from higher exports).

Not everyone is getting with the programme though. The Swedish Liberal People’s Party - which forms part of the governing coalition - still says on its website: “Sweden joining the monetary union would eliminate uncertainties and currency risks - and would contribute to more investments, higher income from exports and economic growth.”

Right…

Play one we know!

For those of you that didn’t know, the European Commission is now in the art business, using taxpayers money to fund various culture projects to promote “greater intercultural dialogue” and various other abstract goals.

Of the projects chosen for funding in 2010, surely the most bizarre is the European Joysticks Orchestra (pictured), which received £50,872 to compose new works, host concerts and train teachers in the “art” of creating music using the computer device.

Click here for a youtube video of the Orchestra’s work.

Other projects include “Exchange Radical Moments”, which aims to organise an event in 2011 featuring “simultaneously scattered actions, images and interventions [which] will sparkle and ignite like flares across the European landscape, leaving ephemeral but direct and uncensored residue”.

Likewise, the European Laboratory for Hip Hop Dance will net £44,931 of taxpayers’ cash to “improve the recognition and visibility of hip hop dance in Europe” and “encourage connectivity between hip hop artists”.

Now we don’t want to be accused of being party-poopers - if people feel that government should be funding cultural projects that is fine. But the problem with the European Commission is that there is no acountability. No one to punish at the ballot box if you feel your money has been spent unwisely.

And quite frankly, judging by the sort of projects the Commission has decided to back, DG Culture is hardly full of budding Charles Saatchis.

Cash cow

On his CAP Reform blog Jack Thurston has a story that illustrates one of the many reasons why reforming the EU’s wasteful and protectionist farming policies is so difficult. The post centres on Henrik Høegh, Denmark’s newly appointed Farming Minister, who is a long-time recipient of EU farming subsidies.

Since 2000, he has received a whopping €604,787.00 from the Common Agricultural Policy and his son and daughter are also thought to be receiving EU cash. Indeed, Høegh is not the only farming minister to have been in receipt of EU subsidies.

In an outright conflict of interest, Mr Høegh is now responsible for signing his own subsidy cheques, but also, as a member of the EU’s Council of Agriculture Ministers, deciding on the future of the CAP.

As Thurston concludes: “With the long-term future of the CAP currently under debate, can the Danish people be confident that Mr Høegh will be pursuing the public interest rather than his own private profits?”

Caught between Ukraine and Majorca

EU Foreign Minister Catherine Ashton is absent from the meeting of EU defence ministers in Majorca today - the first to be held since the Lisbon Treaty came into force.

AFP reports that the defence ministers will be considering increased permanent structured co-operation, where several member states can move cooperation on common security and defence policy forward on their own under the terms of the Treaty, with the say-so of only a qualified majority of member states.

However, Lady Ashton has been double booked, and will instead attend the investiture ceremony of the new Ukranian President, missing discussions on how Lisbon will impact on defence cooperation. One EU diplomat said they has been really looking forward to hearing Ashton’s views, “Especially as, thanks to the treaty, the opportunity is there to reinforce Europe’s defence, to give it more visibility”.

Another rather snippy EU diplomat also said, “Her predecessor Javier Solana didn’t miss a single meeting of this type with the defence ministers. Something has changed in the order of priorities.” Jean Quatremer describes Ashton’s “empty-chair policy” as “all the more infuriating” because NATO Secretary-General Anders Fogh Rasmussen is to attend.

Spain, current holder of the EU Presidency, has made relaunching EU defence strategy one of its priorities of its six month term. The Spanish Defence Minister Carme Chacon has said that one of the issues defence ministers are working towards is “progress towards a European armed force; step by step, but that is our objective.” She has that objective in common with Germany, whose Foreign Minister said earlier in the month that the creation of a European army should be the long term goal of common security and defence policy.

With various EU defence ministers dreaming of a European army, the US yesterday made more noises about Europe’s unwillingness to contribute to NATO, with Defence Secretary Robert Gates saying that the “pacification of Europe” has gone too far and is “an impediment to achieving real security and lasting peace in the 21st [century]”, and Secretary of State Hillary Clinton calling for an “honest discussion” of European defence spending.

Ashton’s decision to make a ceremonial visit to the Ukraine rather than discuss co-ordinated EU defence policy will not doubt be frustrating for the French and Germans, who have been talking about a Franco-German security policy driving EU defence, but is a telling reminder to the outside world of the EU’s preference for pomp and ceremony over dealing with the challenges of the here and now. For one, the US’ patience is clearly running out.