The Great Euro Gamble

In today's Wall Street Journal we argue,

"When European Union leaders forged their monetary union without a full political and economic merger, they gambled on two vital factors: That economic forces could be kept in check, and that national democracies could be managed.

Over the past 16 months, we have been reminded time and again exactly how big and how irresponsible those gambles were. Sunday's was arguably the strongest reminder yet, courtesy of the anti-euro True Finns party that may hold the balance of power in the next Finnish government. Paris, Berlin and Brussels seem not to have factored Nordic populism into their grand plans for the euro. But ultimately the euro zone is about politics, and politics remain as local as they ever were."

We go on,

"The True Finns' success will not change European politics overnight, and the party may not even succeed in blocking Finland's participation in future bailouts. But, irrespective of what we think of the True Finns, the election does highlight how powerfully a euro-zone crisis can contribute to shaping national politics. Euro bailouts were also an important issue in Slovakia's elections last year, and helped to deliver a new governing coalition that refused to take part in Europe's Greek bailout. That government only reluctantly kicked in later to help create the temporary bailout fund that euro leaders are now looking to replace after 2013.

This year the True Finns asked voters to consider the same question that Slovaks did last year: Why should they work harder and retire later to pay for the mistakes and wasteful habits of southern European governments? This "triple-A populism" has proven a powerful force in a number of countries with sparkling credit ratings, including Germany. Writ large, this weekend's Finnish elections are a rebuke of one of the euro zone's central, and fatal, conceits: that political ambition can trump economic and democratic realities."

Looking at EU leaders' gamble on being able to keep economic forces in check, we note,

"Markets have now finally woken up to the fact that Greece and Germany are poles apart; it is time for EU leaders to do so as well. Ireland, Greece and Portugal have made all too clear that economic forces can rarely be predicted, let alone contained.

Some particularly federal-minded EU leaders took this as a pretext to push even harder for a full-fledged fiscal union. Former European Commission President Romano Prodi wrote in an op-ed in the Financial Times last May that "When the euro was born everyone knew that sooner or later a crisis would occur. . . . I was warning years ago that, through no one's fault in particular, extraordinary events could occur that would force joint co-ordination of fiscal policies."

That sentiment spurred EU leaders to take their next major gamble, which was even riskier than the first: They bet that once they did start to effect robust economic and political union, national voters and parliaments would play along and vote the "right" way. So last year, when the EU elites decided to break their own treaties and turn the euro zone into a de facto debt union, they forced taxpayers in some countries to take on the liabilities of foreign governments in other countries—without the possibility of voting these governments out of office. But taxpayers are now showing signs of revolt. "

We conclude,

"Will EU politicians' second gamble turn out as ill-judged as their first? Time will tell. But one thing is clear. The political price that European leaders are paying to keep their flawed project afloat continues to rise."

"She cannae take it Captain": ECJ ruling testing EU's PR machine to breaking point

We have been quick to criticise the EU's vast efforts dedicated to 'improving it's image' with citizens in the past but we're almost starting to feel sorry for the 'communications team' behind them.

Well not really, obviously, but when the ECJ makes daft decisions, like it did this week when it ruled to impose unisex insurance rates, increasing costs for consumers in the process, you really do have to wonder whether the EU's taxpayer-funded PR machine can cope.

With some exceptions, the public and media reaction across Europe has been a mixture of anger and bewilderment . Yesterday, picking up on our briefing on the ruling, a leader in the Times argued:

Many great changes have been made in the name of equality. Forcing women drivers to pay higher car insurance premiums is not one of them. It is extraordinary that the European Court of Justice has decided that what women drivers pay, for the simple act of getting behind the wheel, is a supranational issue. But having done so, it will have made many ordinary people aware for the first time of just what a complex web of issues is increasingly decided by a remote court that is suffering acutely from mission creep.

Unlike the prisoners' votes furore that was limited to the UK, this case has also stirred others across Europe to speak out against the judicial activism of Europe's supranational courts.

FAZ argued that:

Rarely has a court intervened so deeply into contractual freedom as the European Court of Justice has now...In this judgement the ECJ takes up the role of lawmaker in an astonishing way.

Czech business paper Hospodářské noviny:

Insurance premiums are based on statistics. Women cause fewer traffic accidents than men do, and so they pay lower premiums. Men, by contrast, have shorter life expectancies, and so they receive higher monthly pensions. That's all reasonable and logical. The European Court of Justice's decision to ban differentiations between men and women is unreasonable and illogical.

Spain's Cinco Dias wrote:

As [the Spanish insurance association] Unespa explained yesterday, putting this decision into practice will mean that both women and men have to pay more. This leads us to the conclusion that equal treatment won't result in lower insurance premiums and that it will be the consumers who end up paying for the consequences of this ruling.

In the immortal words of the man pictured, "She cannae take it Captain!"

The Charter of Fundamental Rights: It's alive!

Today’s ECJ ruling on insurance premiums, which will mean insurers can no longer offer different products and prices to men and women based on their sex from December 2012 (since that constitutes discrimination in the ECJ's eyes), has thrown up an interesting discussion about the Lisbon’s Treaty Charter of Fundamental Rights. It has passed under the radar of the media, which understandably have focused on the consumer angle.

The discussion on the Charter could appear boring but it’s actually very important.

This is because the UK negotiated a protocol on the Charter when the Lisbon Treaty was agreed, amid concerns that the Charter would take on a life of its own and impact on British rights legislation in ways that were deemed disproportionate or detrimental, either directly or indirectly. In fact, the protocol was one of the reasons cited by the previous government in support of not giving people a referendum on the Lisbon Treaty.

The Protocol states that the Charter “does not extend” the ability of the ECJ to find that UK law is inconsistent with the rights and principles elucidated in the Charter. Originally, the UK Government claimed to have an ‘opt-out’ from the Charter, but this was never accurate. Indeed then Europe Minister Jim Murphy eventually admitted: “It is clear that the UK does not have an opt-out on the Charter of Fundamental Rights.”

That’s history, unfortunately, but what isn’t history is today’s ruling. It’s clear that the ruling bases a significant chunk of its reasoning on the Charter of Fundamental Rights. It’s also clear that the ruling will have direct impact on the UK. In fact, the ruling will have a disproportionately large impact on the UK given that Britain is home to Europe’s largest insurance industry.

But despite drawing heavily from the Charter, there are no references to opt-outs for the UK in the ECJ’s ruling, or protocols or anything else. None.

And just to set this straight – in the ruling, the ECJ does base its reasoning on the Charter. The 2004 Gender Directive is the main driving force, but the Charter provides plenty of ammunition as well. Over on his Economist blog, Bagehot claims that we’re “not quite correct to say that the ruling was based on the Charter of Fundamental Rights, from which Britain supposedly has an opt-out. The court instead looked at a 2004 Gender Directive...”

This is just wrong. Looking at the full text of the ruling, it becomes clear that the ECJ rules that the insurance industry’s derogation from the Gender Directive is incompatible with both the spirit of the Directive itself AND articles 21 (non-discrimination) and 23 (equality between men and women) of the Charter of Fundamental Rights. Clauses 17 and 32 of the ruling put this beyond doubt:

“17. Articles 21 and 23 of the Charter state, respectively, that any discrimination based on sex is prohibited and that equality between men and women must be ensured in all areas. Since recital 4 to Directive 2004/113 expressly refers to Articles 21 and 23 of the Charter, the validity of Article 5(2) of that directive must be assessed in the light of those provisions (see, to that effect, Joined Cases C 92/09 and C 93/09 Volker und Markus Schecke and Eifert [2010] ECR I 0000, paragraph 46).”

And,

“32 Such a provision, which enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits, works against the achievement of the objective of equal treatment between men and women, which is the purpose of Directive 2004/113, and is incompatible with Articles 21 and 23 of the Charter.”

Now, we can argue about whether the Charter is creating "new legal rights" or is in fact the ultimate basis of the ruling (as opposed to the Gender Directive) . But this only shows why the UK's protocol on the Charter never was credible. Anyone who can read can see for himself that the Charter is inspiring the ECJ to rule the way it does on gender-based insurance premiums - which in turn has a huge impact on the UK.

In other words, the Charter is alive and well - also in Britain.

Combining everything that is wrong with the EU's judicial system

Over on Conservative Home, we take a look at today's ECJ ruling on insurance premiums, we argue:

This morning, the European Court of Justice ruled to scrap the insurance industry's opt-out from the EU's 2004 Gender Directive, which will mean insurers can no longer offer different products and prices to men and women based on their sex from December 2012.

This may appear like an everyday consumer story, but it's not. In fact, it's difficult to find an example which better illustrates why EU judges need to be reined in and David Cameron needs to revisit his election promise to limit the jurisdiction of the ECJ and the application of the Charter of Fundamental Rights, entailed in the infamous Lisbon Treaty.

Of the two European courts - the ECJ in Luxembourg and the European Court of Human Rights in Strasbourg (ECHR) - the former is clearly the one with the most influence. On occasion, the ECHR rules on highly symbolic and emotionally charged issues such as prisoners' right to vote - rulings which rightly get a lot of attention. But the influence of the ECJ creeps in to a whole range of areas, striking deep into British society and the economy, from working time for junior doctors to the governance of the UK's most important national industry - the City of London.

The ECJ's ruling this morning combines virtually everything that is wrong with the EU's judicial system. And there's a lot going on. Here goes:

Unnecessary cost of EU laws to individual consumers: Open Europe estimates that the insurance industry will have to raise nearly £1 billion extra to cover itself against the uncertainties created by the ruling - a large chunk of which is likely to be passed on to individual consumers. Moreover, taking motor insurance as an example, a 17 year old female driver will now have to pay an extra £4,300 in insurance premiums by the time she reaches the age of 26 as a consequence of the ruling. In a worst case scenario, women drivers' cumulative insurance costs between the ages of 17 and 26 could increase by as much as £9,300. Young male drivers would on average save an estimated £3,250 over the same period of time (despite displaying riskier behaviour behind the wheel), but the cost to consumers taken as a whole will clearly increase (and men will in turn lose out on their pensions, as a consequence of the ruling).

The unintended consequences of EU laws: Just as was the case with the Working Time Directive - which the ECJ has extended on eight separate occasions, imposing a huge cost on the NHS and the UK economy - the ruling shows how an EU law can change in the most unpredictable way after the UK government has signed up to it (lesson: don't sign up to EU laws without first thinking through all possible unintended consequences).

The EU's endemic democratic deficit: No one in the UK ever objected to the practice of charging men and women different insurance premiums, not individuals, not consumer groups, not UK judges and certainly not democratically elected MPs. And yet, this practice has been scrapped by judges that no one ever voted for, based on a case brought before the courts in a different country (Belgium).

Human rights legislation out of control: The ECJ argued that using gender to differentiate between male and female insurance policies is in violation of EU law on human rights, meaning that despite the fact that roughly 95% of driving offences causing death or injury are committed by young men, the judges could rule that - perversely - taking such evidence into account violates young men's rights. Is this really what human rights law should be about?

The blurring of the line between the ECJ, the Commission and the ECHR: In its ruling, the ECJ made references to both the European Convention on Human Rights, overseen by the Council of Europe (and not an EU institution) and the EU's Charter of Fundamental Rights. This sounds techy, but illustrates the complex web of European human rights law that is now in the hands of European judges at both the Council of Europe's ECHR in Strasbourg and the EU's ECJ in Luxembourg.

In other words, the case law of the ECJ and the ECHR is becoming progressively more blurred as EU judges continually make references to the European Convention on Human Rights in their rulings. In a lecture last year, the Lord Chief of Justice Lord Judge noted that, "The [EU's] European Court of Justice is beginning to acquire jurisdiction over matters that would normally be regarded as matters not for Luxembourg but for Strasbourg." This hugely confusing fudge raises a range of questions about accountability.

The UK government does NOT have an opt-out from the Lisbon Treaty's Charter of Fundamental Rights: Do you remember the claims that the UK had won an "opt-out" from the Lisbon Treaty's Charter of Fundamental Rights (supposedly one of the Labour Government's "red lines" on the Lisbon Treaty and an alleged reason why the promised referendum wasn't called)? Well, as we've argued again and again, there never was such an opt-out and this case clearly illustrates why. The Court draws heavily from the Charter in its ruling - and there's no question whatsoever of the UK not being affected by it. In fact, it impacts on the UK the most, as it is home to Europe's largest insurance industry.

The Conservative election manifesto promised to negotiate a firm opt-out from the Charter before Coalition politics became one of the new realities of life. It also promised to tackle virtually all the other problems so clearly illustrated by this ruling. The Coalition has taken some positive steps on EU reform, but how much longer can they dodge this key issue?

" A step backwards for transparency"

The bulk of the cost of regulations in both the UK and Europe stem from the European Union, as we've showed in our extensive research on the subject. But this isn't even the end of the story.

Many key decisions on the actual substance of EU laws and regulations are being taken during an uber-opaque process called “Comitology”. As we've noted before, Comitology involves special committees consisting of Commission and national experts deciding on how EU legislation should be implemented - usually behind closed doors - after the proposal has been agreed by national governments and the European Parliament.

The Lisbon Treaty - the document, if you remember, that would lead to more transparency in Europe - is introducing new rules for the Comitology procedure, effective from 1 March 2011. The new rules were meant to improve and simplify the system, but are now universally acknowledged to have made the situation even worse (we explain why here).

Political consultant Daniel Guégen, who is one of the foremost experts on this topic, makes the slightly worrying observation that as a result of the reform, power in Brussels “is shifting from the political level to the bureaucratic level.”

Even the European Commission concurs. Mario-Paulo Tenreiro, who is responsible for institutional questions at the Secretariat General of the European Commission (exciting job), says:

I must admit that for the general public the new rules are a step back for transparency...Hundreds of thousands of decisions will be taken by these Treaty articles every year.

Apart from the complexity and opaqueness of the new rules, Euractiv reports that the reforms are also causing legal uncertainty. According to Wolfgang Heusel, director of the Academy of European Law (ERA), this means that "courts will have to have the last word" on how EU legislation should be implemented.

Does this matter? Absolutely! As much as 50% of the actual substance of all EU rules is decided during the comitology stage after the law has already been agreed by Ministers and MEPs, according to Dutch academic research. So we're not talking about fixing little details.

Are the Coalition and other governments around Europe keeping up? We fear not.

Ahead of the last General Election, Ken Clarke (then Shadow Business Minister, now Justice Secretary) managed to give an entire key note speech on regulation and how to improve it, without mentioning the EU once.

Il faut le faire, as the French say.

In the words of a true EU statesman

European Council President, Herman Van Rompuy, presented his imaginatively titled new book yesterday - "Inside the world of Herman Van Rompuy" to a Brussels audience with bated breath.

But those interested in Van Rompuy's exploits as a top EU statesman would have been surprised to hear him declare:

"I don't speak here as a politician but as a free man. I don't have any voters. And I also prefer readers to voters".

Remember, this is the president of an organisation consisting of 27 democratic countries - full of voters!

Now, what does this say about the mindset at the top of the EU? And will this comment make European taxpayers feel better about handing over billions extra (including between £450 mn and £900 mn from UK taxpayers in 2011 alone) to an organisation whose head apparently "has no voters"?