In an interview with the daily Bild Zeitung German Finance Minister Wolfgang Schäuble said “far-reaching financial governance reforms are needed to solve the debt crisis and that would likely require a new EU Treaty” .
There is no doubt that the sub-prime financial crisis has called into question the very foundations of the EU and even whether such political project should deepen itself further or go backwards to the years of more nationalism.
Up till the ratification of the Lisbon Treaty in 2009, the main topics in discussion have been more focused on justice and home affairs. On the other hand, more salient issues related to how fiscal, monetary, financial and economic policies should interrelate, especially in cases of crisis management, have been put under the carpet for several years.
However, whether they like it or not, it seems that the time for strategic decision-making has come. The last 18 months witnessed significant changes, most importantly being the creation of more convergent financial regulation and supervision of the financial sector and also the setting up of the European Financial Stability Facility, which will become known as the European Stability Mechanism from 2013.
These two mechanisms have already been significant in terms of magnitude, taking into consideration the way change occurs within the EU. Both would contribute further to the stability of the eurozone, especially in crisis times. However, the number of changes seems endless and, during the coming year, the EU would very much likely have a very different “face” than what we have been used to so far.
On the fiscal front, more austerity and consolidation are expected to take place, especially in periphery member states like Ireland, Greece and Portugal but not least Italy and Spain. Moreover, the pressure of Germany on other countries will eventually translate into more fiscal discipline, something that was not followed by every member state during the pre-crisis years. It would also make sense to foresee that more countries like France would include the balanced budget principle in their Constitution while more market pressure would be targeted towards the creation of Eurobonds and a European Treasury and also a European Monetary Fund.
Economically, the European Parliament and the European Council will eventually decide on the six-pack economic governance in order to create deeper economic integration and bring all the eurozone members, including Malta, closer to each other in terms of competitiveness, labour and social policies.
Institutionally, the EU is also expected to have a stronger president of the European Council while the right balance between the European Council, the Eurogroup and Ecofin will be sought to deal with economic governance with more efficiency and effectiveness.
On the monetary side, few but very significant issues are expected to be debated, among them the role of the European Central Bank in buying sovereign debt of member states in dire straits. Although, the ECB is insisting that its acts are necessary in case of crisis management and also that its net position is mostly neutral in the face of all these bond purchases, further discussions are expected to take place on finding the right balance between price stability, financial stability and economic growth in light of more transparency and accountability, while maintaining its independence from politicians.
Lastly but not least, in terms of financial regulation and supervision, major changes will be discussed in the European Parliament and the European Council. Among them, there is the amended Capital Requirements Directive IV that will have a major impact on the banking sector and how much they lend to the economy and also how they manage market, capital, operational and liquidity risks etc. Other directives to be debated are those related to credit rating agencies and the managers’ responsibilities in alternative investments like hedge funds and private equity.
The above are just the very few changes expected to happen in the coming year. Eventually, these changes at the level of secondary EU legislation will lead to more political momentum towards further EU Treaty amendments.
The EU is not going through the best moments in its history and, therefore, I agree with other analysts who argue that several years would have to pass before its peoples will be asked again to give more formal powers to the EU.
There are never enough EU Treaty changes because the EU is in continuous search for balance between the supranational, the national, the regional and the local. The trend is nowadays towards more centralisation of power because common problems and challenges have to be dealt through more effective coordination.
The main challenge remains that of legitimising this project in the eyes of the majority. And for this to happen, the principles of subsidiarity and proportionality must be respected in each and every decision, even without major Treaty changes in the very near future.
Mr Schäuble could be right in saying that more EU Treaty changes are necessary. It is how to define the balance between the “elite” and the common citizens that will make the biggest difference in convincing the majority that more Treaty changes are not only possible but even necessary.