German-Polish European BLOG

The Europe that emerges from behind the curtain

Outside the eurozone we will see a more and more fragmented Single Market, shaped according to the needs and wishes of the eurozone members, who, thanks to their dominance in the EU institutions, will be free to pass any legislation they wish to.

Klaus Bachmann*

I spent the last months before the start of my summer vacation in Berlin, participating in on-the-record and off-the-record meetings and conferences about the political situation in Europe and the German and French-driven reform of the EU, or rather, the eurozone. For an observer from Central Europe – even one with a lot of intimate knowledge and interest in European Integration – it was dizzying to observe how precise and detailed were the plans that have already been elaborated to detach the eurozone from the EU and to create a eurozone polity which can act independently from the EU institutions. Europeans may not only be astonished by the boldness of this reform’s design and by the extent to which it has been neglected by the media, but also by how easily it can come into being – even without the need to resort to time-consuming, risky, and frustrating formal amendments to the European treaties.

Eurozone members already control the necessary qualified majority within the Council of the European Union which allows them to pass legislation and to launch an enhanced cooperation proposal. After Brexit, this will be even easier as they will no longer face any cross-cutting vetoes by Britain in EU matters. How will this new eurozone will look like? It will have its own parliament, its own finance minister with a competence to control the ramifications of national budgets (and possibly even veto budget deficits), its own resources (a kind of eurozone tax), its own redistributive mechanisms (funds), and possibly also a separate president of the eurozone council, similar to the power which Donald Tusk now wields as the chairman of the European Council.

Eurozone members already control the necessary qualified majority within the Council of the European Union which allows them to pass legislation and to launch an enhanced cooperation proposal. After Brexit, this will be even easier as they will no longer face any cross-cutting vetoes by Britain in EU matters.

German politicians would generally want such a eurozone to be open to newcomers. But under the current treaties eurozone membership is linked to specific conditions and, taking into consideration the domestic political developments in Hungary and Poland, it is difficult to imagine that these conditions will remain only economic and financial. One might well expect, formally or informally, a new version of the Copenhagen criteria to show up whenever a new country wants to join the eurozone. And joining the eurozone will be much more attractive than it has been in recent years, because the EU’s budget is likely to shrink (mainly, but not solely due to Brexit), and any possible compensation is likely to be channeled into the eurozone budget rather than into the general EU budget. Next, joining the eurozone will mean joining the Banking Union and a number of other risk-sharing and potentially redistributive mechanisms, which are particularly attractive for economically and financially weaker Member States that would thus be much better sheltered from asymmetric shocks and the consequences of global crises.

Joining the eurozone will be much more attractive than it has been in recent years, because the EU’s budget is likely to shrink (mainly, but not solely due to Brexit), and any possible compensation is likely to be channeled into the eurozone budget rather than into the general EU budget.

It is obvious that making the eurozone stronger and more attractive will make EU membership less attractive than it was. Outside the eurozone we will see a more and more fragmented Single Market, shaped according to the needs and wishes of the eurozone members, who, thanks to their dominance in the EU institutions, will be free to pass any legislation they wish to. We have already been able to observe that in recent years, when the freedom of movement was undermined piecemeal by national court decisions and the European Court of Justice. We are also seeing the once competition-friendly service directive turned into its opposite – an instrument for protectionist practices.

Since Emmanuel Macron and Angela Merkel agreed not to exclude treaty changes, it is clear that a treaty revision will start, possibly after the German election in September. However, for most of the above-mentioned changes, treaty revision is not necessary. Treaty changes are likely to be limited to issues consensual among all the Member States and can be decided upon either by the European Council alone (unanimously) or at least without another Convention.

The hot issues, especially the detachment of the eurozone from the wider EU, will have to be dealt with separately. But the current treaties already provide a number of opportunities, of which only a few provide the reluctant Member States with an opportunity to use their veto. This kind of opportunity   is the case with the so-called passerelle clauses, which enable the European Council to shift decision-making unanimously to qualified majority voting. But vetoing can be impeded by resorting to package deals. There are two other methods which don’t involve veto opportunities. First, the merger of different EU positions into one post. This way, an eurozone Finance Minister could emerge even long before a treaty amendment, for example by merging the chairman of the Ecofin Council with the position of the vice-chairman of the European Commission. Second, a lot of changes can be made by intergovernmental decision-making. This way, the eurozone Finance Minister could gain his or her controlling competences with regard to national budgets and a parallel eurozone parliament could be created to match the European one, either with delegates from national parliaments or with delegated EP members. Summing up, the deepening integration of the eurozone will gradually transform the Single Market into a sort of a European Economic Zone within the EU, an important but definitely second-rank instrument of European integration.

Klaus Bachmann – Professor of SWPS University of Social Sciences and Humanities