Theorie und Politik der Europäischen Integration

Theorie und Politik der Europäischen Integration • Theory and Politics of European Economic Integration Lecture 2 EU Institutions and Decisionmaking • Prof. Dr. Herbert BrückerDr. Ehsan Vallizadeh

Last Lecture Theory and Politics of European Integration Lecture 2 Institutions • 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

Today’s Lecture Theory and Politics of European Integration Lecture 2 Institutions • EU Institutions: A Primer • 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 Reading Theory and Politics of European Integration Lecture 2 Institutions • EU History, Institutions, Decision Making and the Budget • Baldwin & Wyplosz (2015) “The Economics of European Integration”, McGraw-Hill, Chs 2 + 3

Part I: Institutions and Budget Theory and Politics of European Integration Lecture 2 Institutions • EU Institutions: A Primer

A heterogeneous group: per capita GNP and population, 2015 Theory and Politics of European Integration Lecture 2 Institutions NMS-13

Is heterogeneity a problem? Theory and Politics of European Integration Lecture 2 Institutions • 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, capital and labour movements • Efficient organisation of trade, capital and labour mobility may need institutions: • e.g. Customs Union with common external tariffs • removal of non-tariff barriers via harmonization of product market regulation • banking and financial market regulation • rules of non-discrimination of foreign workers and equal treatment

EU institutions: three pillars and a roof Theory and Politics of European Integration Lecture 2 Institutions • First pillar: supranational • Integration issues, Common Market (4 Freedoms) • Trade Policy, Competition Policy • Second pillar: intergovernmental, some supranational decision-making • Common foreign and security policy • Third pillar: national, but some intergovernmental policy coordination • Justice and Home Affairs • Roof • European Union and their institutions

The EU Court of Justice created by Treaty of Rome: EU Court then established the Community’s legal system EC law was established on the basis of: EU institutions ensuring that actions by the EC take account of all members’ interests, i.e. the Community’s interest 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 Theory and Politics of European Integration Lecture 2 Institutions

Autonomy: System is independent of Member States’ legal orders. Direct Applicability: Community law is fully and uniformly applicable throughout the EU, i.e. can force Member States to act accordingly Primacy of Community law: Community law has the final say, e.g. Bundesverfassungsgericht can be overruled on matters pertaining to EU competency (e.g. EURO issues) Primary legislation: Treaties (including constitution/constitutional treaty). Secondary legislation: Collection of decisions made by EU institutions. Law: Key principles Theory and Politics of European Integration Lecture 2 Institutions

Institutions Theory and Politics of European Integration Lecture 2 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 Theory and Politics of European Integration Lecture 2 Institutions • Consists of the leader (prime minister or president) of each EU Member State plus the President of the European Commission (Juncker) plus the president of the council (R. Tusk) • By far the most influential institution: • its members are the leaders of their respective nations • Provides broad guidelines for EU policy • But: no formal rule

Institutions: European Council Theory and Politics of European Integration Lecture 2 Institutions • 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. • measures against EURO crisis • refugee crisis • or whatever matters in current policies

Institutions: European Council Theory and Politics of European Integration Lecture 2 Institutions • Meets at least twice a year (June and December): • meets more frequently when the EU faces major political problems (EURO, refugees) • 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 • president of Council invites

Institutions: European Council Theory and Politics of European Integration Lecture 2 Institutions • 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, e.g. by the European Commission, the Council of Ministers and the EU Parliament

Institutions: Council of Ministers Theory and Politics of European Integration Lecture 2 Institutions • 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:

Institutions: Council of Ministers Theory and Politics of European Integration Lecture 2 Institutions • 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).

Institutions: Council of Ministers Theory and Politics of European Integration Lecture 2 Institutions • 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 • Usually, national government bureaucrats meet in the Council of Ministers, only in important cases the ministers.

Council/Council of ministers: Qualified Majority Voting (QMV) Theory and Politics of European Integration Lecture 2 Institutions • 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 2009

Institutions: The Commission Theory and Politics of European Integration Lecture 2 Institutions • 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, e.g. trade (WTO) or with US/Canada today

Commissioners, Commission’s Composition Theory and Politics of European Integration Lecture 2 Institutions • Before the 2004 enlargement: • one Commissioner from each Member State: • 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.

Commissioners, Commission’s Composition Theory and Politics of European Integration Lecture 2 Institutions • Nice Treaty allows to reduce number of Commissioners • But Council decided that we get one Commissioner per Member State = 28 Commissioners at present • Current President: Juncker • 7 Vice-Presidents, incl. High Representative for Foreign Affairs and Security • President is proposed by Council “under consideration” of result of election to the EU Parliament • Commissioners are chosen by their own national governments: • subject to political agreement by other members • Commission President individually, the Commission collectively, approved by Parliament after hearing

Commissioners, Commission’s Composition Theory and Politics of European Integration Lecture 2 Institutions • 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 simple majority, if vote taken • almost all decisions on consensus basis (collegial principle).

Institutions: European Parliament Theory and Politics of European Integration Lecture 2 Institutions • 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 and missing legitimation • limited participation in elections • European elections are mainly driven by national events • No real European public exists, i.e. media exposure • These deficits are of course correlated by limited power of parliament

Institutions Theory and Politics of European Integration Lecture 2 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 Court of Justice Theory and Politics of European Integration Lecture 2 Institutions • 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 Theory and Politics of European Integration Lecture 2 Institutions • 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 States

The Budget Theory and Politics of European Integration Lecture 2 Institutions • The EU Budget

EU Budget: Expenditures Theory and Politics of European Integration Lecture 2 Institutions • EU’s budget amounts to approximated 1.2% of EU’s GDP • Main blocs: • Cohesion & structural funds: ~ 50 % • Common agricultural policies (CAP) ~ 40% • Others & administration negligible • Evolution: Historically, share of CAP declines from 90% to 40%. Accordingly, cohesion & structural funds increased • Boost of expenditures for cohesion & structural funds in context of EU’s Eastern Enlargement rounds

The Budget: Expenditure 2015 Theory and Politics of European Integration Lecture 2 Institutions Source: European Commission, DG Budget, 2015.

Funding of EU Budget Theory and Politics of European Integration Lecture 2 Institutions • 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).

Contribution vs GDP, 1999, 2000 Theory and Politics of European Integration Lecture 2 Institutions • Percentage of GDP per member is approximately 1.2 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).

Part II: Decisionmaking Theory and Politics of European Integration Lecture 2 Decisionmaking

What are the questions? Theory and Politics of European Integration Lecture 2 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

Task allocation Theory and Politics of European Integration Lecture 2Decisionmaking • Typical policy areas: • foreign policy • school curriculum • speed limit • trade policy • Typical levels • local • regional • national • EU / supranational • Task allocation (“competencies” in EU jargon)

The subsidarity principle Theory and Politics of European Integration Lecture 2Decisionmaking • 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. • British renegotiation attempt tried to cut down supranational competencies (but did not help to avoid BREXIT)

Recall: three pillars and task allocation (lecture 2) Theory and Politics of European Integration Lecture 2Decisionmaking • 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.

Theory: Fiscal federalism Theory and Politics of European Integration Lecture 2 Decisionmaking • 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.

Fiscal federalism: The basic trade-offs Theory and Politics of European Integration Lecture 2 Decisionmaking • 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 preferences 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 policies to lower costs. • Spill-overs • Negative and positive spill-overs argue for centralisation. • Local governments tend to underappreciate the impact (positive or negative) on other jurisdictions. • Examples: defence (positive), VAT (negative)

Fiscal federalism: The basic trade-offs (cont.) Theory and Politics of European Integration Lecture 2 Decisionmaking • Democracy as a control mechanism • Favours decentralisation so voters have finer choices. • Jurisdictional competition • Favours decentralisation to allow voters a choice.

Closer look at the trade-offs Theory and Politics of European Integration Lecture 2 Decisionmaking

Diversity and local information Theory and Politics of European Integration Lecture 2 Decisionmaking • 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.

Scale Theory and Politics of European Integration Lecture 2 Decisionmaking • By producing public good at higher scale, or applying to more people may lower average cost. • This ends to favour centralisation. • Examples: defence, transport?, others?

Spillovers Theory and Politics of European Integration Lecture 2 Decisionmaking • 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.

Democracy as a control mechanism Theory and Politics of European Integration Lecture 2 Decisionmaking • 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 packages 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.

Jurisdictional competition Theory and Politics of European Integration Lecture 2 Decisionmaking • 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 centralized policy making, this pressure evaporates.

Economical view of decision making Theory and Politics of European Integration Lecture 2 Decisionmaking • 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.

Theorie und Politik der Europäischen Integration