European Affairs

Perspectives: Why the Next 18 Months are Critical for Europe’s Future     Print
The Honorable Alain Lamassoure, Chairman of the European Parliament’s Budget Committee and lead negotiator on the European Union’s Multiannual Financial Framework (2014-2020)

lamassoureEurope is at the crossroads.  Of course, whenever we speak about Europe or transatlantic relations, we are always at the crossroads, but it’s at a crossroad on four major issues.  The next 18 months will be decisive to know whether Europe will choose the right direction or not.

First, the good news.  Not everything is going wrong in Europe.  Not everything is going wrong, and you have mentioned budget.  Well, earlier this week in arriving in Washington, I was relatively modest on what we have achieved on the EU budget.  But after having met as early as yesterday the House Appropriations Committee and the House Budget Committee, I am a bit less modest.  We have a very small budget, but a highly effective decision-making process.  Our counterparts have a huge budget and a highly-effective non-decision-making process. 

Monetary Union

First choice, first issue to be addressed, to be tackled, the completion of the monetary union.  The monetary union has been decided, as you know, 20 years ago with the Maastricht Treaty, year ’92.  It starts actually in ‘99 and the eurozone has experienced a lot of crisis and has withstood the worst storms in the last three years.  We knew from the beginning that different nations with their very sizable national budgets choosing to have the same currency needed to organize into one single financial market, to have the same rules on banking, on lending, on borrowing to ensure the free movement of capital, a level playing field among all of financial operators, be it bankers or insurers or shadow banking, et cetera, and also that they needed to coordinate their national fiscal policies.  We knew that.  But politics being politics, democracy being democracy, we resort to the courageous and bold measures only if there are no other means to come out of a crisis.

But due to the crisis in the last three years we have complemented all our procedures.  We have set up a new fund, a kind of European monetary fund, the so-called European Stabilization Mechanism.  We managed to bail out the most indebted member states.  We reinforced our fiscal discipline with a new treaty, the name of which is the Fiscal Compact Treaty.  We set up a new institution, a summit of the eurozone.  Now we are in the process of setting up an interparliamentary conference of the eurozone.  The first meeting should take place in mid-October.  Due to the crisis, we have checked that the eurozone is unbreakable.  The eurozone is unbreakable.  If there are financiers in the room, don’t bet on the break-up of the eurozone.  It won’t happen.  Why?  Because when you pool your national currencies into one single currency, it is exactly as if you were making an omelet.  Maybe, you don’t digest it, but you cannot take the eggs back.  

If Greece or Cyprus or Portugal wanted to leave the euro area, that would mean that not only the state goes bankrupt but the banks, the enterprises, the families go bankrupt.  The whole economies, the whole society of these countries would go bankrupt.  It is politically impossible.  The Greek people have understood that.  Rightly, after hesitating, they decided not to leave.  Some brilliant minds argued that, of course, we understand for Greece but for a country like Germany, Germany has nothing to gain from being a member of eurozone, the same currency zone with such weak countries like Greece or Cyprus, et cetera.  But the growth model of Germany depends on exports.  More than half of German exports are directed to their partners in the eurozone.  If Germany wanted to leave the eurozone and to resort to the good old Deutschemark, the value of this new Deutschemark would skyrocket on the exchange markets and it would be impossible for Germany to sell anything to their European partners.  So we are all tied to this currency and, of course, it has drawbacks but it is also advantageous.  

You have noticed that even in the worst of the Greek or Irish crises, the value of the euro against the dollar has always been relatively stable between 1.20 to 1.30.  Today, the share of the euro among the exchange resources of the central banks in China, in India and emerging powers, or in the U.S. has increased as compared with 2007.  When it comes to trade, the eurozone is running a trade surplus of $200 billion.  The completion of this monetary union with what we call the banking union, the fully-fledged banking union, should be achieved by the end of this year.  The process has been slowed down a bit due to the election campaign in Germany.  You know that the general elections are due in Germany next September, on the 22nd.  But by the end of this year, this should be achieved.  So the first issue to be tackled and settled, and which is very likely to be settled by the end of this year, the monetary union and banking union, and reinforcement, strengthening of the eurozone.  

Economic Union

The second issue, what we call economic union.  Economic union means actually the coordination of our national fiscal policies.  When we want to compare the so-called policy mix between the U.S. and the EU, it is impossible.  Policy mix in the U.S. is relatively easy to assess, to measure.  There is one monetary policy conducted by the Fed, and one budgetary policy which is the federal budget policy. On our side of the Atlantic, there is one single monetary policy - the European Central Bank’s policy.  But there are 28 member states with 28 different national budgets, plus the EU budget.  There are 29 budgets to be coordinated.  So far, they haven’t been coordinated.  We are a strange concert which managed very efficiently not to play in tune.  These contradictory policies came up with very detrimental results.  Now is the time to coordinate them.

With the new institutions, the eurozone summit, the interparliamentary conference of the members of the eurozone, we are now in the process of setting up the ways and means, and methods and procedures to coordinate better.  We are starting to perform better on this issue because right now our German friends, partners, and some other northern European countries, having made a lot of efforts to be competitive and having been successful in doing so, now have margins for manuever that they can use to stimulate our common economy.  Particularly, for German Chancellor Angela Merkel, it’s the right time to do so because she’s campaigning for her reelection and she is now in a position to distribute money to launch new public investment. German industry is in the position to increase the salaries and the purchasing power of the workers and some other people in Germany.  So, Northern Europe now can stimulate our common economy while, unfortunately for them, the Southern countries are still in the process of fiscal consolidation and all the delayed reforms that need to be sped up.  It’s the case for the Mediterranean countries, for some central European countries.  It’s the case for my country. We have to be more rigorous and condemned for some time to austerity.

In this compromise on our common budget, the EU budget, what we managed to get, it was a very difficult negotiation.  Imagine, the annual EU budget is enshrined in a multiannual framework.  Every seven years, seven, it’s a biblical reference probably.  I don’t know why seven.  It’s probably too long, but seven.  Every seven years, we renegotiate among the Europeans the content of all European policies: agricultural policy, regional policy, research policy, youth policy, trade policy, et cetera.  And then, we renegotiate also the budget framework to fund these policies. We have made it for the next seven years.

When it comes to that budget, it was particularly difficult for two reasons.  First, for political reasons because according to the procedure, to decide on the next multiannual budget we need unanimity of the heads of states and governments – 28 - and a qualified majority in the European Parliament.  The other reason why it was difficult is that the current funding of the EU budget, which is funded by national contributions from national budgets, which are in poor shape, apart from Germany’s.  It was almost impossible for the member states to agree on increasing and even on stabilizing the current level of the EU budget.  So it was a very difficult negotiation, but we made it.  We found in the European Parliament a qualifying majority to redistribute our small budget, which is going to get a bit smaller in the next few years.

Yesterday, Chairman Paul Ryan asked us, “When you mean you are going to have savings, will this be real cuts?”  Yes, real cuts.  The EU budget will get lower for the next few years than the current level.  It’s a real cut.  But we agreed to redistribute money from the old less effective, less important policies which were and still are very expensive: agriculture down 12 percent.  For the French, it’s something important and difficult politically.  Regional policies which are devised to enable the poorer members - Eastern European countries, Mediterranean countries of the EU - to catch up with the others minus 8 percent, all in order to beef up investment for the future: innovation, research, infrastructure, IT networks and competitiveness of SME’s, et cetera.  We got a qualifying majority in a parliament of 754 members coming from 28 different states speaking 24 different languages.  We made it.  We demonstrated once more that the European Parliament is a formidable machine to reach compromises on everything.  We are in no position to teach lessons to anybody, but if someone is interested in watching how a compromise may be reached on a budget issue, please come and see us!  

It is the second issue, the economic union.  On this issue, in spite of all that I have just said and in spite of my natural optimism, if I am sincere I must say that I am not sure that we will be successful to stimulate our EU economy which today is on the verge of recession.  As you know, all southern Europe is in recession.  France is in recession.  This recession is slowing down even Germany’s economy.  But if the Germans can stimulate, if the rest of the world including the U.S. and economy in U.S. is performing relatively well, it’s good news for us as well.  Hopefully, we can come out of this recession and find and get a reasonable rate of growth.  But it isn’t sure and it won’t happen unfortunately until the end of this year, not earlier than the end of this year or early next year.

Political Union

The third issue is the political union.  In the next few months or next 18 months, we will see whether Europe is able to take a democratic leap and go further in the direction of a fully-fledged democratic entity, a democratic union. Why?  As you know the latest European treaty, the Lisbon Treaty, came into force only in December 2009 after the latest European election.  One very important provision of this treaty will apply for the first time next year with the next European elections.  The European Parliament will be re-elected on the 22 of May 2014.  According to the treaty, it is this parliament that will elect the next President of the European Commission.

You know what the European Commission is.  It’s a sort of executive branch of the European Union, but an odd executive branch with no real democratic legitimacy.  Next year, it will be over.  So far, the president of the Commission had been appointed as a senior international official executive like the Secretary General of the United Nations or the Director General of IMF or World Bank by an agreement among the political leaders.      President Barroso’s successor will be elected by the European Parliament, meaning through the Parliament by the citizens themselves, just as a Prime Minister is elected by a democracy with the parliamentary model.  The British prime minister, the German chancellor, the Spanish or Italian prime ministers are not directly elected like the American president or the French president through a ballot with his or her name.  It is an indirect election through the parliament, but in Germany whoever votes for a CDU candidate for the Bundestag knows that he or she wants Mrs. Merkel to be chancellor.  It’s the same in the UK, et cetera.  It will be the same for the President of the European Commission next year.

The great European political families are organizing themselves right now to ensure that they will be able to organize primary elections to select their nominee.  Around February of next year the rightwing political party, the European People’s Party, to which I belong; the leftwing, the Socialist Party; the centrists of Liberal Democrats; the Green Party and some others will be in a position to announce “if I take the lead of a majority in the next European Parliament, my candidate will be Mr. or Mrs. so and so.”  We will ask our candidate, of course, to tour the 28 member states, the 28 capitals to campaign.  If he or she travels around Europe, he or she will have to speak to say the same thing everywhere - meaning we need a common political agenda, election manifesto.  We have never done that.

All the conservatives in Europe, all the socialists in Europe will have to campaign on the same agenda.  All the media, possibly including the U.S. media, will compete to organize a debate broadcast live among the candidates like between Mr. Obama and Mr. Romney.  All of the EU citizens and possibly some American ones will watch.  It will be a first.  All the European citizens will understand that for the first time there will be a real stake in the European elections.  It will be up to them to decide who will be Mr. or Mrs. Europe and to choose him or her on an agenda, which means that in the middle of next year there will be on the world stage one person having the legitimacy received from the vote of 700 million European citizens.  This will make a difference, if we are able to do so as it is planned, scheduled in the European treaty.

Transatlantic Relations

And the last issue, the last choice to be made in the next two years, of course, is the renewal, updating of the transatlantic relations.  We are very happy on the European side of the launching of the Transatlantic Trade and Investment Partnership (TTIP).  It’s very important.  To say it in a nutshell, we realize that the 21st century will be a difficult one – a very enthusiastic, but very difficult for us with all those emerging powers, all those risks of proliferation of weapons of mass destruction, all those very important countries muddling through to invent new forms of democracy, all those fanaticisms here and there particularly around Europe, very close to Europe, Maghreb and the Middle East.

So in these very enthusiastic but dangerous times, at a time when we the Westerners, the U.S., the Europeans and Canadians, we have set up all the international organizations existing today.  And we are still in a position to influence them - but we know that in two or three decades the world will be very different.  Now is the time for us to work together to ensure that to ensure that all the standards recognized explicitly or implicitly by the rest of the world for the rest of the century are our standards, our democratic standards, our human rights standards, our economic, technical, et cetera, standards.  It’s still time to do that, but we are running out of time.  In one or two, maximum three decades, this will be another world.  This world can be framed by us.  Not by the U.S. alone, not by the EU alone, but by the two of us it’s possible.  I hope we will make it.

Remarks delivered by The Honorable Alain Lamassoure, Chairman of the European Parliament’s Budget Committee and lead negotiator on the European Union’s Multiannual Financial Framework (2014-2020) on July 18, 2013 at a meeting organized by The European Institute in cooperation with the European Parliament Liaison Office with the U.S. Congress.

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