Bolkestein vs. Verhofstadt

Frits Bolkestein, the former Commissioner for the Internal Market and former leader of the Dutch liberals, isn't shying away from frank talk. Earlier this year he penned a dynamite article together with Roman Herzog, former German President and Luder Gerken, Director of German think-tank CEP, warning that the EU was at the risk of "completely breaking down" if it did not win back the support of its citizens.

Bolkestein has now taken aim at arch-federalist Guy Verhofstadt, the Belgian leader of the liberal group in the European Parliament. In name, the two veterans are fellow "liberals", on policy, however (at least on EU policy), they're poles apart.

In an interview with Belgian magazine Knack on Friday (not online), Bolkestein takes the gloves off, calling Verhofstadt’s proposals for EU taxes and EU bonds “ridiculous”, saying “if they do that, then we don’t know where it will end”.

He goes on to say

Verhofstadt should shut up. I have told Hans Van Baalen, who leads the Dutch liberals in the EP, that he needs to resist [Verhofstadt’s proposals]. They should bring that up in the group, they should not let that happen. They need to tell Verhofstadt: you speak in the name of who? Then he will have to acknowledge that he is only speaking for himself.

On Greece and the Euro, Bolkestein says:

How is it possible that Greece has become member of the Eurozone? Who has been sleeping? I have done my best to keep the Italians out. I have pressed [former Dutch Finance Minister] Gerrit Zalm, although that didn’t take much. In Italy he was known as Il Duro, as Il Perfido. Ah, it hasn’t gone the right way.

Interestingly, he said that one of his three main achievements in politics was that “I have given a different turn to opinions on the EU. I was actually the first eurosceptic politician.”

Tough talk. But he's raising the ever so pertinent question - who are the EU federalists (of which there are many in the European Parliament) actually talking for?

We're eagerly awaiting round 2.

Silent revolution

This afternoon Commission President Barroso, speaking at the European University Institute in Florence, sent a reminder to the UK’s Coalition Government and others why the game over the EU’s economic government is far from over. According to Italian media, he said:

The European Council’s conclusions have envisaged small steps, which sometimes are the most important. It is like a silent revolution – stronger economic governance made through small steps.

Silent revolution through small steps? That sounds worryingly familiar.

Eurozone vanity

Latest word is that the eurozone group is holding an emergency video conference this afternoon to discuss Greece's economic situation and possible ways to go ahead with a much anticipated (read: much feared) bailout of the country. This morning's press reports noted that eurozone countries had decided "in principle" to provide financial assistance to Athens, with German Finance Minister Wolfgang Schäuble telling officials in Berlin that there “was no alternative” to a rescue plan.

Ahead of tomorrow's summit of EU leaders, we have published a new briefing looking at 10 different ways in which Greece can be bailed out. At the moment, some sort of eurozone credit facility or an IMF-style 'euro fund' seem to be the frontrunners. However, it's unclear whether these two options are actually legal under the EU Treaties 'no bailout' and 'no credit facility' clauses. (in fact, of the 10 possible bailout scenarios we looked at, only one - early payments of structural funds - is unambiguously legal under the EU treaties).

Obviously lots of issues are on the table at the moment, but at least three consequences of a bailout are worth hammering home.

First, as has been widely documented and argued, watering down the EU's 'no bailout' clause and the 'no credit facility' clause creates moral hazard of unprecedented proportions, and has previously been fiercely resisted by a whole range of EU politicans and central bankers - particularly in Germany. Former Chief Economist at the ECB, Otmar Issing, has said that this would spell an end to "the political stability of the monetary union". He said that, in order for financial discipline to prevail, every member state must be responsible for its own debt and deficits: "without this there would be no end", he said.

Secondly, short term measures will not address the structural lack of competitiveness that affects not only Greece, but also countries such as Spain and Portugal. In order for the differences in competiveness within the eurozone to be addressed, a one-off bailout would need to be followed by continuous financial transfers from the poorer bloc to the richer bloc within the eurozone. Indeed, there would be no end.

Thirdly, there's no public mandate or support for establishing a formal system of fiscal transfers - polling by Open Europe shows that 70% of Germans are against using taxpayers to bail out another member state. This means that eurozone countries are stuck in a very tricky dilemma: either accept continual strains on the eurozone, stemming from the weakness of Greece and others, or pursue a policy of closer economic integration, for which there's no public support.

Some key people in Brussels now seem to be set on the latter alternative. Commission President Jose Manuel Barroso has already said he plans to interfere more in national economic policies, stating that “economic policy isn’t a national, but a European matter. No modern economy is an island. When a member state doesn’t make reforms, others suffer because of that.”

Likewise, EU President Herman Van Rompuy has said, “Whether it is called coordination of policies or economic government” only the European nations working together are “capable of delivering and sustaining a common European strategy for more growth and more jobs…Recent developments in the euro area highlight the urgent need to strengthen our economic governance”.

Former European Commission President Romano Prodi once said that a future crisis could be exploited to radically speed up the pace of economic union: "The euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible now. But some day there will be a crisis and new instruments will be created."

It seems Barroso and Van Rompuy are intent on proving him right.

For the immediate short term purpose of helping out Greece, as we argue in our briefing, the simplest and most sensible option would be to go to the IMF. The Swedes and the UK reportedly both want it but it seems as though the eurozone standard-bearer, Germany, is too proud to contemplate this route.

So integrationist politicians now see in the financial crisis and the introduction of the Lisbon Treaty a chance to take a quantum leap towards a common economic government in the EU and it seems that even Germany - that so far has opposed any movement towards EU fiscal federalism - may be willing to move out of the way.

the economic protectorate

So it has happened that the European Commission - aided by new powers in the Lisbon Treaty (article 121) - has effectively taken control over the Greek economy, demanding pay freezes, tax hikes and reforms of labour markets and the country's healthcare sector in a bid to get Greece's disastrous public finances in order, and avoid various nasty knock-on effects on the rest of the eurozone.

Ambrose Evans-Pritchard noted today in the Telegraph the move marks a "a step-change in the level of EU intrusion." In fact, it marks an extraordinary step-change and brings both the eurozone and the EU into new, unchartered waters. It was always the risk, of course, that keeping the eurozone together would require continuous moves towards a common economic and political union, as the huge structural differences between eurozone economies require central oversight and corrective mechanisms. And the Commission wasted no time in putting the Lisbon Treaty to good use, by invoking the provisions on 'economic policy' - turning Greece into what the country's sceptical left labels an 'economic protectorate'.

So European voters and taxpayers are suddenly faced with two new realities in the European project: they may have to pay for the mistakes of a government in a foreign country; and they may be forced to put up with the EU dictating their country's economic policies when the going gets tough. We're sure that very few of them feel that's what their governments once signed up to.

German taxpayers and the Greek public aside, perhaps the most revealing comment on the political difficulties involved in the EU pursuing its new tools comes from Denmark, which is currently contemplating whether to join the eurozone. The FOA, a Danish trade union which represents most of the country’s public sector workers, on Monday blasted the Commission’s demands on Greece, warning that such intrusions could force the union to recommend a No vote in a future Danish referendum on euro membership (the union has previously stayed neutral on the issue). “That the EU intervenes in setting [national] wages is completely unacceptable”, Dennis Kristensen, head of the FOA, said.

Getting the Greek public on board is hard enough, but getting European voters in general to accept this quantum leap of EU integration is going to be very difficult indeed.

It concerns the EU’s very existence

An issue facing those who want to constructively question the path of EU integration - the kind of democratic opposition that is desperately lacking from EU politics, most notably in the European Parliament - is that EU enthusiasts automatically portray any criticism as a parochial attack on the entire EU project rather than rationally facing up to the EU's failings (which, ironically, is a hugely counterproductive tactic as seen in most polls).

But it is a lot harder for people to simply put their fingers in their ears when a former German President and a former Dutch EU Commissioner say that the EU is getting things wrong. Last Friday, Roman Herzog and Frits Bolkestein, accompanied by the Director of the German based Centre of European Policy think tank Luder Gerken, made their case in the German press for why the EU needs to change or risk "complete collapse".

Herzog made a similar splash in 2008 when he argued that something had to be done to "Stop the European Court of Justice", calling the EU a "mammoth institution" - an article which recieved widespread attention from all sides of the debate (and served to heat up the debate in Germany).

The latest article, entitled "The EU is harming the European ideal", takes a broader look at the EU and argues that the greatest challenge it faces is existential. And the three luminaries aren't pulling any punches:

"It concerns the EU’s very existence: the EU must win back support for its existence, which it has lost from many citizens and even from many parts of the economy. Without this endorsement there is a risk of permanent damage to the people’s acceptance of the fundamental principle of European integration with immeasurable consequences for the EU, including the possibility of it completely breaking down."

They argue that the loss of public support for the EU is a direct result of over-regulation and the one-size-fits-all nature of EU policies:

"The loss of this endorsement stems from an almost all encompassing impression that Brussels legislates regardless of the people’s wishes and of long established traditions and cultures, constantly introduces rules and regulates things that could be regulated at least as well at the regional or national level."

They note that the EU institutions cannot be relied upon to enforce the subsidiarity principle because they are only interested in extending their powers:

"The European Court of Justice will do nothing to enforce the principle. The Court also has an interest in a constant expansion of its areas of competence. The same is true for the European Parliament."

It is therefore up to national governments, parliaments, the media and the public to be the "guardians" of subsidiarity:

"National governments must finally develop a culture of categorically saying No to the horse trading and alliance brokering in the Council of Ministers, when the suggested legislation contravenes the principle of subsidiarity or goes beyond the EU’s areas of competence."

These are not exactly observations coming from the fringes of society. Concern over the EU's democratic deficit does not mean that one cannot at the same time recognise the need for the EU, in one form or another. Herzog, Bolkestein and Gerken cannot be accused of being "anti-European" - the article demonstrates genuine concern for the EU's continued existence - and it would be dangerous to ignore them.

They are voicing the concern of a huge number of European citizens who feel that EU integration has continually been allowed to breach acceptable limits and, as Herzog et al argue:

"European integration is only feasible if the public is also involved. We are a long way away from this, perhaps further away than ever. And if European citizens ever reject the EU in its entirety, we risk creating a mountain of political rubble of historic proportions."

Exactly. When will the EU establishment start to open its eyes to the problems that citizens all across Europe can see?