Blog Post

The “grand bargain” and the principles of European decision-making

What’s at stake The March 11th Heads of State EU Summit brought a few important changes to the crisis resolution mechanism and to economic policy coordination that we will discuss in greater details once the conclusions of the follow-up 24/25 March Summit are published. In the meantime, perhaps the most important consequence of the March […]

By: Date: March 25, 2011 Topic: Macroeconomic policy

What’s at stake

The March 11th Heads of State EU Summit brought a few important changes to the crisis resolution mechanism and to economic policy coordination that we will discuss in greater details once the conclusions of the follow-up 24/25 March Summit are published. In the meantime, perhaps the most important consequence of the March 11th agreement lies with the discrete but firm side-lining of the European Commission and the establishment of a two-speed governance system.

An institutional coup

Andrew Watt argues that for two member states to simply short-circuit the normal EU procedures and arrange a grand bargain that is then presented, as a fait accompli to other heads of government was really extraordinary.

Garret Fitzerald argues that the French-German idea of employing an intergovernmental reform process, outside the EU’s normal decision-making structure has received almost no publicity despite its potential impact. The normal decision-making system (known as the “community method”) is one that precludes member states, regardless of their size and importance, from pushing their own interests by proposing new EU laws. Only the independent commission may propose such laws, which, subject to agreed amendments, are then adopted by the Council of Ministers, nowadays jointly with the European Parliament. There is a new danger that the decision-making system that for over half a century has sustained and kept in balance an inherently cumbersome union, incorporating some very large and also many small states may lose its hitherto carefully preserved cohesion, and for the first time become dominated by some larger states.

Jacques Delors, Romano Prodi and Guy Verhofstadt argue that the Franco-German proposal for a competitiveness pact received short shrift as much for the indelicate manner of its presentation as for its content. Finding a formula that works for all is no easy matter. But that task should be the preserve of the European Commission, not a cabal of two or three countries imposing a model on the rest. The authors also criticise the fact that the Franco-German proposal is based on an intergovernmental model of peer pressure that has proved repeatedly ineffective because it lacks discipline and impartial adjudication which the Commission was designed to achieve more than 60 years ago.

Nothing about you without you

March 11th saw the first ever two-tier summit, a richly symbolic event at which the 27 leaders met in the morning, lunched together and then divided. The Economist argues that historians may come to see this as the moment when the EU split into a dominant, corporatist euro area and a smaller, more liberal outer zone. The fear that the single currency could divide Europe has a long history, going back at least to the 1992 Maastricht treaty but, in previous instances, Germany had played a crucial role in keeping Europe together. Bagehot argues that the next few months and years will reveal what this means for the 10 EU member countries that are not inside the euro zone: many of their governments, from Scandinavia to eastern and central Europe, are plotting furiously to gain some form of access to the summits of euro-zone leaders that are fast becoming a habit in EU-land.
Charlemagne
argues that March 11th created important divisions between EU members and Eurozone members. In its original draft, the Franco-German proposal set out six objectives to be achieved within a year. All this was to be supervised by national governments, not the European Commission, the EU’s civil service. There would be yearly summits at 17 or 17-plus – the euro zone plus any others that choose to join. After denunciation from all sides, the latest version now renamed the “pact for the euro” places the commission at its heart and removes the overlap with existing plans for closer scrutiny of members’ economic and budgetary policies. And it appoints the commission to supervise new commitments that are national prerogatives.

Place du Luxembourg reports that many speakers at a Policy Network conference feared that the emerging two-speed Europe would create problems in the governance of the single Market, as some of the new economic rules were single market rules that would only apply to the Eurozone countries. Mario Monti identified those items, which concern the single market: The mutual recognition of professional qualifications, the reduction of the retirement age and the end of wages indexation to inflation. From here he then went on to argue that for all the debate about the quality of these and the other proposals, the problem was that they did not represent a credible commitment.

Bruegel Economic Blogs Review is an information service that surveys external blogs. It does not survey Bruegel’s own publications, nor does it include comments by Bruegel authors.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More by this author
 

Blog Post

It’s hard to live in the city: Berlin’s rent freeze and the economics of rent control

A proposal in Berlin to ban increases in rent for the next five years sparked intense debate in Germany. Similar policies to the Mietendeckel are currently being discussed in London and NYC. All three proposals reflect and raise similar concerns – the increase in per-capita incomes is not keeping pace with increases in rents, but will a cap do more harm than good? We review recent views on the matter.

By: Inês Goncalves Raposo Topic: Macroeconomic policy Date: July 8, 2019
Read article More on this topic
 

Blog Post

The breakdown of the covered interest rate parity condition

A textbook condition of international finance breaks down. Economic research identifies the interplay between divergent monetary policies and new financial regulation as the source of the puzzle, and generates concerns about unintended consequences for financing conditions and financial stability.

By: Konstantinos Efstathiou and Bruegel Topic: Banking and capital markets Date: July 1, 2019
Read article More on this topic
 

Blog Post

The June Eurogroup meeting: Reflections on BICC

The Eurogroup met on June 13th to discuss the deepening of the economic and monetary union (EMU) and prepare the discussions for the Euro Summit. From the meeting came two main deliverables: an agreement over a budgetary instrument for competitiveness and convergence and the reform of the European Stability Mechanism (ESM) treaty texts. We review economists’ first impressions.

By: Bruegel and Inês Goncalves Raposo Topic: Macroeconomic policy Date: June 24, 2019
Read article More on this topic
 

Blog Post

The campaign against ‘nonsense’ output gaps

A campaign against “nonsense” consensus output gaps has been launched on social media. It has triggered responses focusing on the implications of output gaps for fiscal policy under EU rules, especially for Italy. But the debate about the reliability of output-gap estimates is more wide-ranging.

By: Konstantinos Efstathiou and Bruegel Topic: Macroeconomic policy Date: June 17, 2019
Read article More on this topic
 

Blog Post

The inverted yield curve

Longer-term yields falling below shorter-term yields have historically preceded recessions. Last week, the US 10-year yield was 21 basis points below the 3-month yield, a feat last seen during the summer of 2007. Is the current yield curve a trustworthy barometer for future growth?

By: Inês Goncalves Raposo and Bruegel Topic: Global economy and trade Date: June 11, 2019
Read article More on this topic
 

Blog Post

The 'seven' ceiling: China's yuan in trade talks

Investors and the public have been looking at the renminbi with caution after the Trump administration threatened to increase duties on countries that intervene in the markets to devalue/undervalue their currency relative to the dollar. The fear is that China could weaponise its currency following the further increase in tariffs imposed by the United States in early May. What is the likelihood of this happening and what would be the consequences for the existing tensions with the United States, as well as for the global economy?

By: Inês Goncalves Raposo and Bruegel Topic: Global economy and trade Date: June 3, 2019
Read article More on this topic
 

Blog Post

The next ECB president

On May 28th, EU heads of state and government will start the nomination process for the next ECB president. Leaving names of possible candidates aside, this review tries to isolate the arguments about what qualifications the new president should have and what challenges he or she is likely to face.

By: Bruegel and Konstantinos Efstathiou Topic: Macroeconomic policy Date: May 27, 2019
Read article More on this topic More by this author
 

Blog Post

The latest European growth-rate estimates

The quarterly growth rate of the euro area in Q1 2019 was 0.4% (1.5% annualized), considerably higher than the low growth rates of the previous two quarters. This blog reviews the reaction to the release of these numbers and the discussion they have triggered about the euro area’s economic challenges.

By: Konstantinos Efstathiou Topic: Macroeconomic policy Date: May 20, 2019
Read article More by this author
 

Blog Post

Is an electric car a cleaner car?

An article published by the Ifo Institute in Germany compares the carbon footprint of a battery-electric car to that of a diesel car, and argues a higher share of electric cars will not contribute to reducing German carbon dioxide emissions. Respondents rejected the authors’ calculations as unrealistic and biased, and pointed to a series of studies that conclude the opposite. We summarise the article and responses to it.

By: Michael Baltensperger Topic: Digital economy and innovation, Green economy Date: May 13, 2019
Read article More on this topic More by this author
 

Blog Post

All eyes on the Fed

Last week the US Federal Reserve left the federal funds rate unchanged and lowered the interest rate on excess reserves. We review economists’ recent views on the monetary policy conduct and priorities of the United States’ central bank system.

By: Inês Goncalves Raposo Topic: Global economy and trade Date: May 6, 2019
Read article More on this topic More by this author
 

Blog Post

Is this blog post legal (under new EU copyright law)?

How new EU rules on using snippets from news publishers and on copyright infringement liability might affect circulation of information, revenue distribution, market power and EU business competitiveness.

By: Catarina Midões Topic: Macroeconomic policy Date: April 8, 2019
Read article More on this topic
 

Blog Post

Secular stagnation and the future of economic stabilisation

Larry Summers’ and Łukasz Rachel’s most recent study documents a secular fall in neutral real rates in advanced economies. According to the authors, this fall would be even more marked in the absence of offsetting fiscal policies. Policymaking in a world of permanently low interest rates may be hard to navigate, especially in troubled waters. We review economists’ views on the matter

By: Inês Goncalves Raposo and Bruegel Topic: Macroeconomic policy Date: April 1, 2019
Load more posts