Theorie und Politik der Europäischen Integration Prof. Dr. Herbert Brücker Lecture 2 EU Institutions and Decisionmaking Theory and Politics of European

Theorie und Politik der Europäischen Integration

Prof. Dr. Herbert Brücker

Lecture 2

EU Institutions and Decisionmaking

Theory and Politics of European Economic Integration

Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker

Theory and Politics of European Integration Lecture 2 Institutions

Last Lecture

• Course Overview

• EU History· Why European Integration: Preventing another war in Europe· Two competing concepts: federalism vs. intergovernmentalism· Links between deeper integration and expansion· Europessimism· Single Market Programme 1992· Collapse of Communism· Eastern enlargement and ‘finalisation’ of Europe· German unifcation, Maastricht and EMU· EU Treaties and EU Constitution· Euro crisis



• EU Institutions• Key Facts• EU Law• The “Big 5” Institutions• Legislative process• Budget

• Decisionmaking• Task Allocation and Fiscal Federalism• Evolution of Voting Rules• Efficiency of Decision-making• Fair Power Distribution and Legitimacy

Today’s Lecture



Today's Reading

• EU History, Institutions, Decision Making and the Budget· Baldwin & Wyplosz (2009/2012) “The Economics of European

Integration”, McGraw-Hill, Chs 2 + 3



A heterogeneous group: per capita GNP and population, 2010

0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0

population in millions

PP

P G

NP

pe

r c

apit

a in

US

D

LX

IE

ATDK

NLBE UK FISE FR DE IT

SP

GRPT

CYSLCZ

HUSVK

PL LV

ROBU

CRORU SB TK MK

BO UKR ALB

EU-15 NMS-12 Future Members?



Also in absolute size …

B+W Fig. 2.2



Is heterogeneity a problem?

• How to device institutions that ensure the rights of small countries

• Why then should big countries surrender some powers• EU a consensus driven enterprise • Mutual benefits … find win-win situations … may stem from

trade



Facts: EU15’s Trade Pattern

B+W t. 2.2



EU trade patterns

• EU-27 members are all comparatively open economies

· openness and size · figures for Japan and the US are 10 per cent and 8 per cent

respectively.• EU15 market is very important for all EU-27

· share of exports going to the EU15 ranges between 50 per cent to 80 per cent.

• The EU trades mainly with Europe, especially with itself

· about two-thirds of EU exports and imports are to or from other Western European nations

· the EU’s exports to North America amount to only 10 per cent of its exports

· Asia’s share is only 8 per cent • About 80 per cent of EU exports consist of

industrial goods· ‘intraindustry’ trade



EU organization: three pillars and a roof

• First pillar · Integration issues, Common Market, Competition (4 Freedoms) · Supranational

• Second pillar · Common foreign and security policy· Intergovernmental, some supranational decisionmaking

• Third pillar· Justice and Home Affairs· Intergovermental coordination, no suprantional decisionmaking

• Roof· European Union and their institutions



The EU Court created by the Treaty of Rome:• court then established the Community’s legal system

EC law was established on the basis of:• the EU institutions ensuring that actions by the EC take

account of all members’ interests, i.e. the Community’s interest

• the transfer of national power to the Community. • Constitutional Treaties and Constitution replaces this as the

source of EU law.• Future Treaties may follow, e.g. on financial sovereigneity

Law – sources of



Autonomy:• system is independent of members’ legal orders.

Direct Applicability:• has the force of law in member states so that Community law

can be fully and uniformly applicable throughout the EU.

Primacy of Community law:• community law has the final say, e.g. Bundesverfassungsgericht

can be overruled on a matters pertaining to intra-EC imports

Primary legislation:• treaties (including constitution/constitutional treaty).

Secondary legislation:• collection of decisions made by EU institutions.

Law: Key principles



Institutions

There are dozens of EU institutions –but only five are really important:• European Council • Council of Ministers • Commission• Parliament• EU Court.

Others matter in specific areas or at particular moments.



Institutions: European Council

• Consists of the leader (prime minister or president) of each EU member plus the President of the European Commission.

• By far the most influential institution: • its members are the leaders of their respective nations.

• Provides broad guidelines for EU policy.




Thrashes out compromises on sensitive issues:· reforms of the major EU policies· the EU’s multiyear budget plan· Treaty changes· final terms of enlargements, etc.




Meets at least twice a year (June and December):• meets more frequently when the EU faces major political

problems• highest profile meetings at the end of each six-month

term of the EU Presidency • these meetings are important political and media events

· determine all of the EU’s major moves




• most important decisions of each Presidency are contained in a document, known as the ‘Conclusions of the Presidency’, or just the ‘Conclusions.

• Strangely enough, the European Council has no formal role in EU law-making:

• its political decisions must be translated into action via Treaty changes or secondary legislation.



Institutions





Institutions: Council of Ministers

Usually called by old name Council of Ministers (formal name is now ‘Council of the EU’).

Consists representatives at ministerial level from each Member State, empowered to commit his/her Government:




• typically minister for relevant area:· e.g finance ministers on budget issues · confusingly, Council uses different names according to

the issue discussed. – Famous ones include EcoFin (for financial and

budget issues), the Agriculture Council (for CAP issues), General Affairs Council (foreign policy issues).




• Is EU’s main decision-making body (almost every EU legislation must be approved by it).

• Main task to adopt new EU laws:• measures necessary to implement the Treaties• also measures concerning the EU budget and

international agreements involving the EU • is also supposed to coordinate the general economic

policies of the Member States in the context of the Economic and Monetary Union (EMU), e.g. famous 3 per cent deficit rule.



Council/Council of ministers: Qualified Majority Voting (QMV)

QMV is complex and is changing (see Part II).Three sets of rules:

• Procedure that applies until mid 2004:· basic form unchanged since 1958 Treaty of Rome.

• Procedure post-2004 (from Nice Treaty) unless Constitutional Treaty supersedes them:

· political agreement in Nice Treaty; implemented by Accession Treaty for 2004 enlargement.

• Procedure from Constitutional Treaty· Effective now since ratification



Institutions





Institutions: The Commission

Has three main roles:• propose legislation to the Council and Parliament• to administer and implement EU policies• to provide surveillance and enforcement of EU law

(‘guardian of the Treaties’) • it also represents the EU at some international

negotiations.



Commissioners, Commission’s Composition

Before the 2004 enlargement:• one Commissioner from each member:

· extra Commissioner from the Big-Five (Germany, UK, France, Italy and Spain in the EU15)

· this includes the President, two Vice-Presidents and 17 other Commissioners.




Under Nice Treaty each member in EU25 had one Commissioner

• Current president: BarrosoDraft Constitution, only 15 Commissioners:

• rotating evenly among all members• would have non-voting Commissioners from other

nations (IGC likely to change this).

Commissioners are chosen by their own national governments:· subject to political agreement by other members · Commission, the Commission President individually,

approved by Parliament after hearing




Each Commissioner in charge of a specific area of EU policy:• Directorate-Generals (DGs).

Executive powers• Commission executive in all of the EU’s endeavours• power most obvious in competition policy and trade

policy.Manage the EU budget, subject to EU Court of Auditors. Decision making:

• decides on basis of a simple majority, if vote taken • almost all decisions on consensus basis.



Institutions





Institutions: European Parliament

Two main tasks:• oversees EU institutions, especially Commission• has to approve Commission • it shares legislative powers, including budgetary power,

with the Council and the Commission.• traditional problem …: democratic deficit



Institutions

There are dozens of EU institutions –but only five are really important:• European Council • Council of Ministers • Commission• Parliament• EU Court




Institutions: European Court of Justice

• EU laws and decisions open to interpretation that lead to disputes that cannot be settled by negotiation:

• Court settles disputes, especially disputes between Member States, between the EU and Member States, between EU institutions, and between individuals and the EU.

• EU Court’s supranational power highly unusual in international organisations (very influential)



Institutions: European Court of Justice

• As a result of this power, the Court has had a major impact on European integration.

· 1964 judgment established EC law as an independent legal system that takes precedence over national laws in EC matters

· 1963 ruling established the principle that EC law was directly applicable in the courts of the members.



The Budget

The EU Budget



The Budget: Expenditure



Evolution of Spending Priorities



Evolution of Spending, Level



Funding of EU Budget

EU’s budget must balance every year.Financing sources: four main types:

• Tariff revenue – common external tariff• ‘Agricultural levies’ (tariffs on agricultural goods)• ‘VAT resource’ (like a 1 per cent value added tax – reality

is complex) • GNP based (tax paid by members based on their GNP).



Evolution of Funding Sources



Contribution vs. GDP, 1999, 2000



Contribution vs GDP, 1999, 2000

• Percentage of GDP per member is approximately 1 per cent regardless of per-capita income.

• EU contributions are not ‘progressive’, e.g. richest nation, (L) pays less of its GDP than the poorest nation (P).



Net Contribution by Member


Theory and Politics of European Integration Lecture 3 Decisionmaking

Part II: Decisionmaking



Which level of government is responsible for which task? • Why centralize, why decentralize? What are the

trade-offs?• Which task at which levels?

How efficient and fair are the EU’s decision rules?• Ability to act• Distribution of power

What are the questions?



Typical policy areas:• foreign policy• school curriculum• speed limit• trade policy

Typical levels• local• regional• national• EU / supranational

Task allocation (“compentencies” in EU jargon)

Task allocation



Before looking at the theory, what is the practice in EU?Task allocation in EU guided by “subsidarity” principle (Maastricht Treaty)

• Decisions should be made as close to the people as possible • EU should not take action unless doing so is more effective than

action taken at national, regional or local level

Background: “creeping competencies”• Range of task where EU policy matters was expanding. • Some Member States wanted to discipline this spread.

The subsidarity principle



3 Pillar structure delimits range of:• Community competencies (tasks allocated to EU).• Shared competencies (areas were task are split between EU and

member states).• National competencies.

1st pillar is EU competency.2nd and 3rd are generally national competencies

• details complex, but basically members pursue cooperation but do not transfer sovereignty to EU.

Recall: three pillars and task allocation (lecture 2)



What is optimal allocation of tasks?Basic theoretical approach is called “Fiscal Federalism”.Name comes from the study a taxation, especially which taxes should be set at the national vs. sub-national level.

Theory: Fiscal federalism



What is the optimal allocation of tasks?• There is no clear answer from theory, just list of trade-offs to be

considered.

Diversity and local informational advantages• Diversity of preference and local conditions argues for setting

policy at low level (i.e. close to people).

Scale economies• Tends to favour centralisation and one-size-fits-all to lower

costs.

Spillovers• Negative and positive spillovers argue for centralisation.

– Local governments tend to underappreciated the impact (positive or negative) on other jurisdictions.

– Examples: defense (positive), VAT (negative)

Fiscal federalism: The basic trade-offs



Democracy as a control mechanism· Favours decentralisation so voters have finer choices.

Jurisdictional competition· Favours decentralisation to allow voters a choice.

Fiscal federalism: The basic trade-offs (cont.)



Closer look at the trade-offs



One-size-fits-all policies tend to be inefficient since too much for some and too little for others.Central government could set different local policies but local Government likely to have an information advantage.

Qd2Qd1 Qc,1&2

D1

D2

Davg

MC per person

MVc,2

MVc,2

A

B

Quantity

euros

Diversity and local information



By producing public good at higher scale, or applying to more people may lower average cost.This ends to favour centralisation.

• Hard to think of examples of this in the EU. Defense?

Qd1 Qc,1&2

D1

Davg

MC p.p. (decentralised)

C

D

MC p.p. (centralised)

Quantity

euros

Scale



Example of positive spillovers.If decentralised, each region chooses level of public good that is too low.

• e.g. Qd2 for region 2.

Two-region gain from centralisation is area A.Similar conclusion if negative spillovers.

• Q too high with decentralised.

Spillovers

Qd2 Qc,1&2

Combined region 1 & 2 Marginal Benefit Curve

MCd

Quantity

euros

Private and Social Marginal Cost

Region 2’s Marginal Benefit Curve (demand curve)

MCc A



If policy is in hands of local officials and these are elected, then citizens’ votes have more precise control over what politicians do.High level elections are take-it-over-leave-it for many issues since only a handful of choices between ‘promise packages’ (parties/candidates) and many, many issues.Example of such packages:

• Foreign policy & Economic policy.• Centre-right’s package vs Centre-left’s package.• At national level, can’t choose Centre-right’s economics and

Centre-left’s foreign policy.

Democracy as a control mechanism



Voters influence government they live under via:• ‘voice’

· Voting, lobbying, etc.

• ‘exit’. · Change jurisdictions (e.g. move between cities).

While exit is not a option for most voters at the national level, it usually is at the sub-national level. And more so for firms.

• Since people/firms can move, politicians must pay closer attention to the wishes of the people.

• With centralised policy making, this pressure evaporates.

Jurisdictional competition



Using theory to think about EU institutional reforms.• e.g., institutional changes in Constitutional Treaty, Nice Treaty,

etc.

Take enlargement-related EU institutional reform as example.

Economical view of decision making



Since 1994 Eastern enlargement was inevitable & EU institutional reform required.

• 3 C’s: CAP, Cohesion & Control.• CAP: budget problem due to large agricultural sectors in NMS• Cohoesion: budget problem due to low income levels in NMS• Here the focus is on Control, i.e. decision making.

Endpoint: EU leaders accepted the Constitutional Treaty June 2004. Last country ratified November 2009!Look Nice Treaty and Constitutional Treaty.

• Constitutional Treaty is after several postponements in force now

Focus on Council of Ministers voting rules.• See Chapter 2; these are the key part of EU decision making.

EU enlargement challenges



Three sets of rules

Voting rules in the Constitutional Treaty



No longer used since 1 November 2004, but important as a basis of comparison.“Qualified Majority Voting” (QMV):

• ‘weighted voting’ in place since 1958, • Each member has certain number of votes,• Populous members more votes, but far less than population-

proportional.· e.g. Germany 10, Luxembourg 2

• Majority threshold about 71% of votes to win.

Pre-Nice Treaty Voting Rules



3 main changes for Council of Ministers:Maintained ‘weighted voting’.

• Majority threshold raised to 71-72%

Votes re-weighted. • Big & ‘near-big’ members gain a lot of weight.

Added 2 new majority criteria: • Population (62%) and members (50%).

ERGO, triple majority system.• Hybrid of ‘Double Majority’ & Standard QMV.

Nice Treaty Voting Rules



190%190%190%190%

238%238%

160%140%140%140%140%140%

150%150%

133%133%133%133%133%

33%33%33%

100%100%

50%

GermanyUnitedKingdo

FranceItaly

SpainPoland

NetherlandsGreece

CzechRepublicBelgiumHungaryPortugalSwedenAustria

SlovakiaDenmark

FinlandIreland

LithuaniaLatvia

SloveniaEstoniaCyprus

LuxembourgMalta

Consider percentage increase by member:

• members ranked by population.

Who win?Who lose?

QMV: Nice/Accession Treaty Reforms



Voting rules

Voting rules can be complex, especially as number of voters rises.Number of yes-no coalitions is 2n.

• Example: All combinations of yes & no votes with 3 voters Mr A, Mrs B, and Dr C;

Example: EU9 when Giscard d’Estaing was President of France.

• 512 possible coalitions.When Giscard considered Constitutional Treaty rules, it was for at least 27 members:

• 134 million coalitions.

Yes No

A, B, C

A, B C

A B, C

B,C A

C A,B

A, B, C

A, C B

B A,C



1. “Passage Probability” measures ‘Decision making efficiency’. • Ability to act

2. Less formal: Number of „blocking coalitions“3. Normalise Banzhaf Index measure Power distribution among members.

• Many others are possible

2 Formal Measures



Passage probability is ratio of two numbers:• Numerator is total number of winning coalitions.• Denominator is total number of coalitions.

Passage probability equals probability of win if all coalitions are equally likely.

• Idea is that for a ‘random’ proposal, all coalitions equally likely.• Nations don’t know in advance whether they will ‘yes’ or ‘no.’

Caveats: This is a very imperfect measure.• Not random proposals,

But, still useful as measure of change in decision-making efficiency.

Passage probability explained



Step Forward: • Re-weighting improves decision-making efficiency.

2 Steps Backwards:• 2 new majority criteria worsens efficiency• raising vote threshold worsens efficiency.

The ways to block in Council massively increased.• EU decision-making extremely difficult.

Main point is Vote Threshold raised.• Pop & member criteria almost never matter .

· About 20 times out of 2.7 million winning coalitions.

• Even small increases in threshold around 70% lowers passage probability a lot

· The number of blocking coalitions expands rapidly compared to the number of winning coalitions.

Nice reforms: 1 step forward, 2 steps backward



Historical Passage Probabilities

0%

5%

10%

15%

20%

25%Passage

Probability QMV: Historical QMV: No Reform QMV: Nice Reform

QMV: Historical 21.9% 14.7% 13.7% 9.8% 7.8%

QMV: No Reform 7.8% 2.5%

QMV: Nice Reform 8.2% 2.1%

EU6 EU9 EU10 EU12 EU15 EU27



Blocking coalitions.Easier to think about & probably what most EU leaders used.Try to project likely coalitions and their power to block.For example, coalition of “Newcomers” & coalition of “Poor”.

Less formal analysis



Examples: 2 blocking coalitions, Nice rules

14

91

183

16

166 170

12

108 106

0

200

Members Votes Population

Poor coalition votesEast coalition votes



0

5

10

15

20

25

Pass

age

prob

abil

ity

Historical 21.9 14.7 13.7 9.8 7.8

Status quo: May 04 to Nov 04 2.8

Nice rules: Nov 04 to Nov 09 3.6 2.8 2.3

CT rules: Nov 09 onwards 10.1 12.9 12.2

EU6 EU9 EU10 EU12 EU15 EU25 EU27 EU29

Constitutional Treaty rules increase ability to act



Formal power measures:Power = probability of making or breaking a winning coalition.

• SSI = power to make.• NBI = power to break.

Focus on the NBI.In words, NBI is a Member’s share of swing votes.

Power measures



Why use fancy, formal power measures?Why not use vote shares?

• Simple counter example: 3 voters, A, B & C• A = 40 votes, B=40 votes, C=20 votes• Need 50% of votes to win.

All equally powerful!Next, suppose majority threshold rises to 80 votes.

• C loses all power.

ASIDE: Power measures



Power measures in EU15

0%

2%

4%

6%

8%

10%

12%

14%

NBI Vote share

NBI 11.2% 11.2% 11.2% 11.2% 9.2% 5.9% 5.9% 5.9% 5.9% 4.8% 4.8% 3.6% 3.6% 3.6% 2.3%

Vote share 11.5% 11.5% 11.5% 11.5% 9.2% 5.7% 5.7% 5.7% 5.7% 4.6% 4.6% 3.4% 3.4% 3.4% 2.3%

D UK F I E NL Gr B P S A DK SF Ire L

• For EU15, NBI is very similar to share of Council votes, so the distinction is not so important as in 3 country example.

Distribution of power among EU members



0

2

4

6

8

10

12

0 5 10 15 20 25

Vote Share/Population Share

Bud

get S

hare

/Pop

ulat

ion

Shar

e

Luxembourg

Do power measures matter? The budget measure



Do power measures matter? The budget measure

y = 0.9966x + 0.0323R2 = 0.7807

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0 1 2 3 4

Vote Share/Population Share

Bud

get S

hare

/Pop

ulat

ion

Shar

e

Ireland

Greece

BelgiumPortugal

DenmarkSpain

Finland

AustriaSwedenNL

France

Italy

UK

Germany



Impact of Constitutional Rules:Change in power in EU-25 compared to Nice rules, %-points

-0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07

GermanyTurkey

UKFrance

ItalySpain

PolandRomania

NetherlandsGreece

Czech RepublicBelgium HungaryPortugalSw edenBulgariaAustria

SlovakiaDenmark

FinlandCroatiaIreland

LithuaniaLatvia


LuxemburgMalta

NBI SSI



Impact of Constitutional Rules (cont.):Power change Const. Treaty and Nice rules in EU-29, %-points

-0.02 -0.01 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07

GermanyTurkey

UKFrance

ItalySpain

PolandRomania

NetherlandsGreece


SlovakiaDenmark


LithuaniaLatvia


LuxemburgMalta

NBI SSI



Enlargement impact on EU power, Nice rules (%-points)

-0.016 -0.014 -0.012 -0.010 -0.008 -0.006 -0.004 -0.002 0.000

GermanyTurkey

UKFrance

ItalySpain

PolandRomania

NetherlandsGreece


SlovakiaDenmark


LithuaniaLatvia


LuxemburgMalta

NBI SSI



Enlargement impact on EU-25 power, CT rules (%-points)

-0.025 -0.020 -0.015 -0.010 -0.005 0.000 0.005

GermanyTurkey

UKFrance

ItalySpain

PolandRomania

NetherlandsGreece


SlovakiaDenmark


LithuaniaLatvia


LuxemburgMalta

NBI SSI



Legitimacy is slippery concept.• Approach: equal power per citizen is legitimate ‘fair’.

Fairness & square-ness.• Subtle maths shows that equal power per EU citizen requires

Council votes to be proportional to square root of national populations.

Intuition for this:• EU is a two-step procedure

· Citizens elect national governments, · These vote in the Council.

• Typical Frenchwoman is less likely to be influential in national election than a Dane.

• So French minister needs more votes in Council to equalise likelihood of any single French voter being influential (power).

• How much more? • Maths of voting says it should be the square root of national

population.

Legitimacy in EU decision making



Legitimacy is slippery concept• Approach: equal power per citizen is legitimate ‘fair’.

Fairness & squareness• Subtle maths shows that equal power per EU citizen requires

Council votes to be proportional to square root of national populations.

Legitimacy in EU decision making



NEXT LECTURE

• November 13, 15:00 hours• The Microeconomics of Trade and Tariffs and

Preferential Trade Liberalisation• Baldwin & Wyplosz (2009/2012) “The Economics of European

Integration”, McGraw-Hill, Ch 4-5.

Documents

Theorie und Politik der Europäischen Integration Prof. Dr. Herbert Brücker Lecture 2 EU Institutions and Decisionmaking Theory and Politics of European