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Lecture 2: European Union institutions and policies

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Summary of Lecture 1

Economic means to a political end Non-linear process:

Common market - 1960s Eurosclerosis – 1970s Single European Market – 1980s Reunification of Europe – 1990s EMU – 2000s Economic crisis – 2010s

Force for inclusion Supranationality vs intergovernmentalism

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Overview of Lecture 2

The basics of creating an economic union An overview of the EU: population, income and

economic weight The “Big Five” EU Institutions Legislative process and decision-making The EU budget

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The basics of creating an economic and monetary union

“If markets are so integrated, you can’t cook a different soup in one corner of the pot” (Andres Sutt, DG, Bank of Estonia)

Treaty of Rome, 1957 – now retitled “Treaty on the Functioning of the EU” Article 1: establish European Economic Community Article 2: establish a common market and approximate

economic policies Article 3: free movement of goods, services, labour and

capital and common policies

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Main elements (1)

Free trade in goods Eliminate tariffs, quotas and all other barriers that act like tariffs or

quotas

Common trade policy with the rest of the world Formation of a Customs Union necessary to avoid controls inside

EU (Rules of Origin) - forces supranationality

Ensuring undistorted competition (to avoid other policies offsetting trade barrier removal): State aids regulated by Commission (most prohibited) Anti-competitive behaviour regulated by Commission Approximation of laws (ie, harmonisation) necessary to ensure free

movement of goods

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Main elements (2)

Unrestricted trade in services Non-tariff barriers, technical standards

Labour and capital market integration Free movement of workers (not people) Free movement of capital

Exchange rate and macroeconomic coordination Managed exchange rates The euro and the growth and stability pact

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The bumpy road to economic integration

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Inte

grat

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ind

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Customs Union phased in 1958-68

CAP, 1962 Monetary

integration failures

EMS, 1979

Single Market Programme phased in, 1986-1992

EMU phased in, 1993-2001

DFFM index

BN index

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The EU in 2013

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EU populations

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Population

6 ‘big’ nations: > 35m (Germany, the UK, France, Italy, Spain and Poland)

2 in-betweens: Romania (21.5m), Netherlands (16m)

8 ‘medium’ nations (size of a mega city): 8-11m (Austria, Belgium, Bulgaria, Czech Republic, Greece, Hungary,

Portugal, Sweden) 5 ‘small’ nations (size of a big city)

1-5m (Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, Slovak Republic, Slovenia)

3 ‘tiny’ nations <1m (Cyprus, Malta, Luxembourg)

Small and tiny nations less than 5 % of EU27 population

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Income per capita (PPP)

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Income per capita

11 high income (above EU25 average) over €22,500 Ireland, Netherlands, Austria, Sweden, Denmark, Belgium, Finland, UK,

Germany, France, and Italy

6 medium income category – from €19,000 to €22,500 Greece, Cyprus, Slovenia, Czech Republic, Malta

9 low income nations, less than €19,000 Portugal, Estonia, Slovakia, Hungary, Lithuania, Latvia, Poland, Romania,

Bulgaria

Luxembourg is in the super-high income category by itself per capita income more than twice that of the Dutch

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Size of economies (1)

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Size of economies (2)

"Other"Ireland 1.5% Luxembourg 0.3%Finland 1.5% Slovenia 0.3%Portugal 1.3% Bulgaria 0.3%Czech Republic 1.2% Lithuania 0.3%Romania 1.0% Latvia 0.2%Hungary 0.9% Estonia 0.1%Slovakia 0.5% Cyprus 0.1%

Malta 0.04%

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Size of economies (3)

Economic size distribution is VERY uneven Six nations (Germany, the UK, France, Italy, Spain and the

Netherlands) account for more than 80% of EU27’s economy. Other nations are small, tiny or miniscule ‘Small’ is an economy that accounts for between 1% and 3% of

the EU25’s output: Sweden, Belgium, Austria, Denmark, Poland, Finland, Greece,

Portugal and Ireland ‘Tiny’ is one that accounts for less than 1% of the total:

Czech Republic, Hungary, Slovak Republic, Luxembourg, Slovenia, Lithuania, and Cyprus

Miniscule is one that accounts for less than 0.1%: Latvia, Estonia and Malta

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The constant tension: supranationality vs intergovernmentalism

Supranationality: European Commission, Europe Parliament

Intergovernmentalism: European Council, Council of the European Union

EEC supranational, Luxembourg Compromise in 1966 Single European Act 1986 restored Qualified Majority

Voting (QMV) to economic integration From Nice to Lisbon. QMV extended

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Lisbon Treaty

Nice Treaty 2001 – paved the way for institutional reform pending accession of new member states

Constitutional Treaty signed by EU25 on October 29, 2004 Needed to be ratified by member states, some by referendum Netherlands and France voted no in referendums in 2005

Lisbon Treaty was an attempt to rescue key parts of the Constitutional Treaty Lisbon Treaty signed December 13, 2007 Came into force January 1, 2009

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Governments, parliaments and judiciary

Government – develops policy, controls the Executive (ministries)

Parliament – votes legislation, holds government to account Often there is an upper house and a lower house House of Lords vs House of Commons, Senate vs

House of Representatives

Judiciary – implements legislation, independent of government and parliament

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EU Institutions: The ‘Big Five’

There are dozens of EU institutions, but only five are really important: European Council Council of the EU European Commission European Parliament EU Court

Government

Parliament

Judiciary

Upper House

Lower House

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European “capitals”

Strasbourg

Brussels

Luxembourg

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European Council (1)

Leader (prime minister or president) of each EU member plus: President of the European Council (new

under Lisbon Treaty) First appointment 1 December 2009 to 31

May 2012 Herman Van Rompuy, 49th Prime Minister of

Belgium until he became President On 1 March 2012, Van Rompuy was

appointed for a second term until 30 November 2014

The President of the European Commission also sits on the European Council

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European Council (2)

By far the most influential EU institution first meeting in 1961 Formalised in 1974 not mentioned in Treaties until 1986 now permanent institution under Lisbon Treaty

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

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European Council (3)

Meets at least twice a year (June and December) Chaired by the President of the European Council

Formerly the chair rotated between heads of government/state every six months

Highest profile meetings used to be at the end of each six-month term, when agenda can be set by presiding member state – eg, Copenhagen 2002, admitting 10 CEECs

No longer the same driver with a permanent president

Determines all of the EU’s major moves No formal role in EU law-making - its decisions must be

translated into action via Treaty changes or secondary legislation

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Council of the European Union (1)

Mostly called by it old name, “Council of Ministers”

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

typically minister for relevant area – eg, finance ministers on budget issues

Council uses different names according to the issue discussed –EcoFin (for financial and budget issues), the Agriculture Council (for CAP issues)

Member state chairing various meetings rotates six-monthly (Cyprus July-December 2012)

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Council of the European Union (2)

Exception:

Council of EU Foreign Ministers is chaired by High Representative

High Representative of the Union for Foreign Affairs and Security Policy– often called EU Foreign Minister

High Representative is a member of the European Commissioner (First VP of the European Commission)

Currently Baroness Catherine Ashton (December 1, 2009 – November 30, 2014)

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Council of the European Union (3)

The branch of the bicameral EU’s decision-making body that represents governments of member states US Senate vs House of Representatives

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 (e.g. famous 3% deficit rule) chaired by relevant minister from member state with EU

presidency

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The European Commission

European Commission is at the heart of the EU’s institutional structure – executive arm/civil service

Driving force behind deeper and wider European integration 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’) to represent the EU at some international negotiations

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EU Commissioners (1)

Before the 2004 enlargement, one Commissioner from each member, two from Big Five = 20

Under Nice Treaty 2003, each member in EU27 has one Commissioner

Lisbon Treaty originally proposed reducing number to 15 from 2014

“26+1 compromise” – one fewer than the number of member states, with “loser” getting High Representative President José

Manuel Barroso

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EU Commissioners (2)

Commissioners are chosen by their own national governments: subject to political agreement by other members Commission and President approved by Parliament President chosen by European Council

Commissioners are not national representatives: should not accept or seek instruction from their country "the only body paid to think European"

Appointed together, serve for five years (2010-14) – the second “Barroso Commission

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EU Commissioners (3)

Commissioner = minister of state Each is in charge of a specific area of EU policy

Directorate-Generals (DGs)

Executive powers Commission executive in all of the EU’s activities power most obvious in competition policy and trade policy manages EU budget, subject to EU Court of Auditors decides on basis of a simple majority, if vote taken; mostly

consensus basis

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European Parliament (1)

The branch of the bicameral EU’s decision-making body that is directly elected by the population

Two main tasks: shares legislative powers, including budgetary power, with

the Council and the Commission oversees EU institutions, especially Commission

Based in Strasbourg, but also holds meetings in Brussels nationalistic struggles to keep an EU institution in each

country

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European Parliament (2)

736 MEPs

Directly elected every five years (2009-14)

Serve the 2nd largest democratic electorate (after India) – 375m eligible voters

Martin SchultzPresident

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European Parliament (3)

MEPs represent local constituencies, but generally organised along classic European political lines, not national lines as in Council

The European People's Party - centre-right, includes members from every EU state

Progressive Alliance of Socialists and Democrats - centre-left

The Alliance of Liberals and Democrats for Europe

European Parliamentary elections are, in principle, a way for Europeans to have their voices heard on European issues, but often national referenda on incumbent national governments

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European Parliament (4)

Number of seats per country(2009 – 2014 parliamentary term)

Austria 17 Latvia 8Belgium 22 Lithuania 12Bulgaria 17 Luxembourg 6Cyprus 6 Malta 5Czech Republic 22 Netherlands 25Denmark 13 Poland 50Estonia 6 Portugal 22Finland 13 Romania 33France 72 Slovakia 13Germany 99 Slovenia 7Greece 22 Spain 50Hungary 22 Sweden 18Ireland 12 United Kingdom 72Italy 72 TOTAL 736

Number of seats per country (2009 – 2014 parliamentary term)

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European Parliament (5)

  European People's Party

 Progressive Alliance of

Socialists and Democrats

 Alliance of Liberals and Democrats for Europe

 The Greens–European

Free Alliance

 European Conservatives

and Reformists

European United Left–Nordic Green Left

Europe of Freedom and Democracy

  Non-Inscrits

2009 Results: 7th European Parliament

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European Court of Justice (1)

EU laws and decisions open to interpretation that lead to disputes that cannot be settled by negotiation: Court settles these disputes between Member States,

between the EU and Member States, between EU institutions, and between individuals and the EU

Supranational authority: 1963 ruling established the principle that EC law was

directly applicable in the courts of the members 1964 ruling established EC law as an independent legal

system that takes precedence over national laws in EC matters

1979 Cassis de Dijon on NTBs started SEM

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European Court of Justice

Influence: Court has had a major impact on European integration via

case-law Organisation:

located in Luxembourg one judge from each member appointed by common agreement for six years also eight ‘advocates-general’ to help judges the Court reaches its decisions by majority voting

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Legislative Process

European Commission has a near-monopoly on proposing legislation

Ordinary legislative procedure (OLP – used to be called co-decision) requires: proposal to be adopted by the European Parliament (deciding

by simple majority) and Council of the European Union (deciding by qualified

majority)

if the Parliament and/or the Council disagree, proposal only adopted if both agree through conciliation procedure

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Types of EU legislation

Primary legislation ( treaties) Secondary legislation (collection of decisions made by EU

institutions) Regulation - Applies to all member states, companies,

authorities and citizens. Regulations apply immediately they are written.

Directive - Set out the result to be achieved, Member states decide how to comply with directive

Decision - legislative act that applies to a specific member state, company or citizen.

Recommendations and opinions - not legally binding, but can influence behaviour

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Council of the European Union – decision-making

Two main decision-making rules: unanimity - on the most important issues, eg, Treaty

changes, enlargement, multi-year budget plan qualified majority voting (QMV)

QMV is complex and has changed over time Three sets of QMV rules:

Procedure 1958-2003 (from Treaty of Rome) Procedure 2004-14 (from Nice Treaty) Procedure 2014- (from Lisbon Treaty)

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QMW until 2004 enlargement

Each member’s minister gets fixed number of votes based on population

But fewer than pro-rata eg, France (60m) had 10 votes; Denmark (5m) had 3 total number of votes in the EU15 was 87 the threshold (‘qualified majority’) for a winning

majority was 62 votes (71 %)

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Pre-2004 QMV - implications

Bigger members have more votes, so 71 % of the votes does not mean 71 % of members three large members voting ‘no’ could block adoption even

if the other 12 voted ‘yes’

Small nations get far more votes than population-proportionality, so 71 % of the votes does not mean 71% of the EU population 71 % threshold can theoretically be reached, e.g. by a

coalition of just eight members representing 58 % of the EU population

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QMV 2004-14

Proposition passes the Council when coalition of yes-voters meets three criteria: votes:

72 % of the Council votes (232 votes of the 321 Council votes in the EU25)

number of members: 50 % of the member states

population: 62 % of the EU population

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Post-2004 - votes reallocated to favour big nations

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QMV: Nice Treaty Reforms

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 Percentage increase in

votes by member state Poland, Spain are

relative biggest winners

Tiny members biggest relative losers

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Lisbon Treaty – takes effect October 2014

‘Double majority’ system: to pass: majority of countries (55% or 72% if EC does not

initiate) representing 65% of the population or condition to block not met

to block: at least 4 countries against the proposal or if not all members participate (eg, if some have opt-out)

the minimum number of members representing more than 35% of the population of the participating Member States, plus one member are against the proposal

Better reflects population size, but prevents smaller member states being overruled by the larger countries

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Council of the European Union – voting in practice

Council normally aims at unanimous decisions QMV used to encourage compromises for consensus Final decision rarely uses QMV For example, in 2008:

128 of 147 Council decisions unanimous Of other 19, 32 abstentions and only 8 votes against

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EU Budget: expenditure

€864.3 billion for the period 2007–2013

Expenditure is in four main areas:

o Agriculture (about half) = preservation and management of natural resources (CAP, fishing policy, etc)

o Cohesion (about one third) = growth and employment

o Other internal policies = competitiveness for growth and employment & citizenship, freedom, security and justice

o External policies = the EU as a global partner

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EU Budget 2011

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Evolution of Spending Priorities

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External

Other Internal

Cohesion

CAP

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Evolution of Spending Level

Total Spending, Million euros, 1958-2006

0

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40,000

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120,000

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Spending received by member state (€m)

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Funding of EU Budget

EU’s budget must balance every year Financing sources:

Tariff revenue ‘Agricultural levies’ (tariffs on agricultural goods) ‘VAT resource’ (like a 1 % value added tax – reality is

complex) GNP based (tax paid by members based on their GNP) –

top up to ensure EU budget balances

Only partially related to per capita GDP

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Evolution of Funding Sources

0%

20%

40%

60%

80%

100%

197119721973197419751976

19771978197919801981

19821983198419851986198719881989199019911992199319941995199619971998199920002001

Shar

e of

tota

l rev

enue

GNP

VAT

Miscellaneous

Customs Duties

Agricultural Duties

Source: “The Community Budget: The facts in figures” European Commission, 2000. Downloadable from http://eurpoa.eu.int/budget/

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Contribution as % GDP

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EU budget “problem”

On expenditure side: Receipts depend on economic structure rather than per

capita GDP

On revenue side: Contribution depends also on economic structure Approximately 1 percent regardless of per-capita income EU contributions are not ‘progressive’ - richest nation,

(Luxembourg) pays less of its GDP than the poorest nation (Bulgaria)

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Net Contribution by Member

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Conclusions

EU economies heterogeneous by population, pc GDP, absolute GDP, economic development so different national interests

EU institutions have executive, parliament/legislature + judiciary

Voting in Council vexed issue how to weight votes, ensure small country voice heard

Budget reallocates funding to poorer/rural members So further emphasis on different national interests