(10) European Economic Crisis



10. How the euro spoilt any other business

IT WOULD BE EASY TO FORM THE IMPRESSION that, at least since late 2009, nothing much has happened in the European Union except for the euro crisis and its economic and financial repercussions. Yet the normal business of the European institutions in such areas as competition policy, policing the single market, agriculture, transport, social and employment regulation, and trade has perforce continued.

The budget has continued to be spent and, especially in the negotiations for 2014–20, quarrelled over. The European Council has also, from time to time, been summoned to discuss matters other than the economy and the euro, even if it has quickly reverted to these more momentous issues. There has been less EU legislation than before, in part because governments have long made clear that they wanted less. Even so, overall it is undeniable that the euro crisis has spilt damagingly into many other areas of EU activity.

One example is climate change, an issue where the Europeans have for a long time prided themselves on being in the lead globally. The EU was a pioneer not just in signing the Kyoto protocol on carbon-dioxide emissions but also in setting up the world’s first emissions-trading scheme (ETS).

In 2008 it adopted a “20–20–20” strategy: setting 2020 as a target date by which all EU members undertook to cut greenhouse-gas emissions by 20%, to raise the share of renewable in energy consumption by 20% and to improve energy efficiency by 20%. Yet partly thanks to its economic woes, the EU’s influence at the 2009 Copenhagen environment summit, and again at the 2013 Warsaw environment summit, was minimal. The ETS has largely been a failure, as too many permits were issued and too many industries exempted. Carbon prices under the scheme have dropped too low to make much difference.

Popular enthusiasm for curbing climate change has faded, even though, thanks to its recession,  the EU as a whole will just about hit the 20–20–20 target. In part the feeling has grown that there is little point in pursuing this without further action by the United States and China. But loss of interest in climate change also reflects Europeans’ preoccupation with the euro crisis and rising joblessness, creating a strong desire not to harm competitiveness with too many “green” taxes. As it is, European industries pay four times as much for gas and twice as much for electricity as their American rivals, which are benefiting from cheap shale gas. In its January 2014 proposals for new climate-change targets, the Commission suggested only that all EU members should aim to cut greenhouse-gas emissions by 40% by 2040; it dropped national targets for renewables, proposing only that the EU as a whole should push its share up to 27% on the same timescale.1

Energy policy more broadly has also suffered from neglect, in part because of the euro crisis. I 2009, shortly before it broke, the EU adopted a “third energy package” that envisaged a much tougher approach to liberalising gas and electricity markets, including separating production, transmission and supply (a process known as unbundling). Various regulations and directives to implement this package have since been adopted. And the Commission has also initiated competition proceedings against Gazprom, Russia’s energy giant. The Russians have been lobbying hard for changes to the third energy package. But partly because Europe’s economic woes raised new concerns about high energy costs, progress towards implementing unbundling has been slow or non-existent.

A similar story could be told in many other areas of EU business, ranging from transport to agricultural to industrial policy. Partly because the 28 commissioners all want to have something to do, there is no shortage of papers and draft proposals for legislation on the table. But the enthusiasm with which they are pursued and the attention paid to them by national governments, and especially by leaders in the European Council, has of necessity been limited by the need to focus on their more pressing concerns for the euro. In many cases this has mattered only a little. Indeed, less regulation in unnecessary places is now widely seen as a desirable and not a bad outcome. But in a few areas the lack of attention from the top has been positively damaging.

A prime example is efforts to strengthen and complete the single market. After the 2005 fiasco over the “Bolkestein” directive to open up services markets, named after the Dutch commissioner then in charge, which was demonised as a Frankenstein directive in the French referendum campaign on the EU constitution and linked to a supposed influx of Polish plumbers, the eventual text was much watered down, leaving a single market in services largely incomplete.2 The digital economy is also not properly covered by single-market rules: price-comparison websites remain fiercely national, as do most consumer-protection laws, taxes, electronic-waste rules and postal systems. The result is that e-commerce, which has mushroomed in the United States and in several individual European countries, is notably undeveloped across European borders.

Yet over the past few years most talk of extending the single market, often promoted by liberal countries like the UK and Sweden, has been drowned out by fears associated with recession and rising unemployment. The fate of Mario Monti’s 2010 report, A New Strategy for the Single Market, is particularly instructive.3 The report was commissioned by José Manuel Barroso, the European Commission president, long before Monti became Italian prime minister, when he was thought of as just another former commissioner. In the report, Monti proposed further work to complete the single market in energy, digital and services, and also suggested ways to bolster the green economy and to improve free movement of people and capital (including some elements of tax harmonisation).

By a cruel irony, however, the report was published on the same day as the Greek bail-out was agreed. The European Council had earlier in the same year proposed a new EU 2020 strategy to follow from the earlier Lisbon strategy, which was meant to create the world’s “most competitive and dynamic knowledge-based economy” by 2010. But, just as the Lisbon strategy had never really been implemented, partly because neither France nor Germany seemed to believe in it, so the EU 2020 strategy seems to have been quietly abandoned. The European Council duly endorsed the Monti report, but little more was done to pursue it. Monti himself has gone further: he has warned that because of the euro crisis, repatriation of bank lending, different interest rates round Europe and rising protectionist pressures, there is a real risk that the single market could go through a period of “rollback and even disintegration”.4

The price of inaction

One could run through almost any area of EU business in the past five years and reach similar conclusions. Normal activity has continued and there have even been some noteworthy policy successes, for example in reforming the common fisheries policy to end the practice of discarding catches. But time and again work has stalled as commissioners, officials and national ministers have been sidetracked into efforts to resolve the euro crisis. The single market remains incomplete, partly because the attention of the commissioner concerned, Michel Barnier, has been focused mainly on bank and financial regulation. Although almost all governments have called for less as well as better regulation, the Commission’s sausage machine has continued to churn out unwanted rules. Trade policy has been active, with several free-trade deals negotiated or in the pipeline. But the involvement of EU leaders has been noticeable mainly by its absence.

The decision in 2013 to launch talks towards a Transatlantic Trade and Investment Partnership (TTIP) was driven in large part by the Europeans, who were mainly concerned not to lose out from Barack Obama’s new focus on Asia. But the worry is that concerns about Europe’s economies, high unemployment and the future of the single currency may well continue to divert political and media attention away from the important details in the TTIP. All trade talks run into trouble, with special interests sheltering such things as agriculture, audio-visual services, rules on public procurement, and food and veterinary standards. Already there are signs of emerging doubts about the TTIP’s chances on the European side. On the American side, the US Congress has not even given Obama the trade promotion authority that he needs to pass a deal. The World Trade Organization’s Doha round largely fell apart, with what was eventually enacted being more of a mouse than an elephant – though that was mainly because of objections from emerging countries like India, not because of the Europeans. There is every chance that the same could happen with the TTIP.

That would be a double missed opportunity, for as well as boosting economic growth; the TTIP could be the last chance that Europe and the United States will get to set standards and rules for world trade before a newly powerful China exerts its influence. And yet, even before the talks began, the French managed to block any discussion of their notorious cultural exception, under which protection of audio-visual products such as films is allowed despite free-trade rules. Transatlantic differences over telecoms, internet and bank regulation, and over the rules governing airlines and shipping, remain wide. Phytosanitary rules on the use of hormones in meat or for genetically modified crops are also potential stumbling blocks. With the euro continuing to divert everybody’s attention, European elections and the choice of a new Commission approaching, and Obama still denied fast-track authority by Congress, the chances of a successful outcome to the TTIP talks do not look all that high.

A last area where the EU has managed less than it might have done over the past five years is justice and home affairs (JHA). Under the Lisbon treaty, most activity in JHA has moved from being done inter-governmentally and by unanimity to being carried out by the community method, and thus subject to qualified-majority voting and co-decision with the European Parliament. Viviane Reding, the justice commissioner, has produced a number of proposals, such as a revised European arrest warrant, a European public prosecutor’s office, new extradition arrangements, and common immigration and asylum rules. Yet few of these have made much progress, not only because the UK, Denmark and Ireland have opt-outs (and the UK is opting out en bloc from all JHA rules in 2014), but also because of the general distraction of the euro crisis.5

The other reason JHA has proved disappointing is that immigration has suddenly become such a toxic issue in many countries. The rise of populist parties has been driven in many cases by increasing voter hostility to immigration, even within the EU. The belief that migrants from central and Eastern Europe are taking jobs or claiming generous welfare benefits has become widespread. The British, Dutch and Germans are all talking of introducing new rules to stop “benefit tourism”. Opinion pollsters have found that by far the biggest reason British voters give for backing the UK Independence Party is not its anti-EU policy but its anti-immigration one.

Some political leaders, including the UK’s David Cameron, have questioned the principle of free movement of labour within the EU, on the grounds that when it was enshrined nobody expected the club to include such relatively low-income countries as Romania and Bulgaria. Cameron has suggested that any future enlargement to take in new countries might have to be accompanied by permanent controls on free movement of people – an irony given that the UK has traditionally been the strongest supporter of EU expansion to admit new members. The Swiss vote in February 2014 to put quotas on immigration even from within the EU was not just a breach of Switzerland’s various agreements with the EU that could threaten the country’s access to the single market; it was also a harbinger of similar thinking within the EU itself.

A Commission of neglect

The euro crisis has, in short, managed to distract attention from much of the rest of the agenda of the Commission, national governments and the European Parliament since 2009. Economic difficulties have inevitably sapped the European Union of much of its broader influence in the world. And because Europe’s political leaders have spent so much time trying to repair the defects in their single currency, they have devoted much less attention to considering the future shape and direction of the EU. As the immediate worry that the euro might collapse dissipates and with the prospect of a new Commission and new European Parliament just ahead, Brussels is left with a European project that is itself in some danger of falling apart due to political neglect.

Some have suggested that a good place to start improving things might be with the Commission itself. In the UK and many northern countries, the notion that the Commission should be doing less but also doing it better is widely shared: even Barroso has expressed a similar wish. The Dutch and Germans have been especially vociferous in demanding less red tape and bureaucracy, and more attention to the principle of subsidiarity, which provides that action, should be taken at European level only if it is more efficacious than acting at national level. But even across southern Europe, the feeling that sometimes the Commission and the European Parliament are too intrusive has spread.


One reason the Commission has traditionally found it hard to respond to calls for it to do less is that there are too many commissioners. There is a widespread consensus that 28 is too big a number for the college. Not surprisingly, each commissioner wants to make his or her mark with legislation. Worse, partly because the Commission does not act like a government, there is no real system for coordinating and prioritising its actions. Instead, the Commission operates in a silo-like way, with individual directorates operating largely without much reference to each other or to the president. The proposal in the constitutional treaty and then the Lisbon treaty that there should be fewer commissioners than one per country was quietly shelved as a gesture to secure Irish approval of the treaty the second time round. At least some governments would like to find a way to revive its spirit, perhaps by creating senior and junior commissioners.




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