A € for your thoughts(4): Verhofstadt, Delors and Prodi on the Pact for Competitiveness

Although this will be a short post it is a most momentous one, as it refers to an article by an assembly of European dignitaries and published (yet again) in the Financial times, one of the most widely read European newspapers across the continent. It is a most momentous one because it comes in the midst of the tide of discussions that are setting the background to the upcoming March 11 and March 25 meetings of EU heads of state. It is momentous because of the standing of the people who wrote it, former prime ministers, and European Commissioners and the leader of the centre group (ALDE) in the European Parliament. Finally, it is momentous for the content it bears, for although it is not revolutionary, the bluntness with which it is made is impressive.

In recent days, and on the heels of the Franco-German Pact for Competitiveness, the leaders have upped the tempo on these negotiation, with the European Commission and the Presidency of the Council coming up with their own counter proposal (see Barroso-Van Rompuy Competitiveness Pact Proposal). In that context, the opinion voiced in this article is very much an endorsement and an upgrade of that later proposal. Where as the Barroso-Van Rompuy proposal innovated by proposing a role for the European Commission, where the Franco-German proposal saw none, this article puts the European Commission in the driving sea:

“The Franco-German proposal was also based on an intergovernmental model of peer pressure that has proved repeatedly ineffective. It lacks the discipline and impartial adjudication to deliver results. Both the Lisbon strategy for growth and the stability and growth pact failed to live up to expectations, because member states are reluctant to sanction each other. Instead, the Commission was envisaged 60 years ago to oversee and enforce commonly agreed decisions.” As I have been saying for weeks, I couldn’t agree with their views more.

However, I must disagree with this article by the FT’s Mr Munchau. I don’t agree that “to think that Europe can force the hands of countries where vested interests block growth-promoting structural reforms is to forget the history of Brussels’ impotence outside areas where member states collectively accept its authority.” I believe that on the contrary it is to remember that history. Credible commitment in the EU is only achieved through delegation. That is what we have learned from the failures of the Common Market (in which countries opened their borders only to use technical barriers to trade to try to promote national producers) from the failures of the European Monetary System (in which countries weren’t able to commit to a fixed exchange rate) and from the failures of the Stability and Growth Pact (in which countries weren’t able to commit to a balanced budget over the business cycle). The first was inevitably replaced by the Single market, the second by the Eurozone and the third will eventually be replaced by a system of fiscal transfers. All were marked by a failure of cooperation and the success of delegation.

I will however agree to the fact that all of this talk about competitiveness is a distraction from the issue of fiscal prudence and sovereign debt. It is, as I said previously a confusion created by Germany in order to “up the ante” prior to the council so has to give itself a bargaining advantage. However, it messed up the agenda by mixing changes in the EFSF with issues generally labeled as competitiveness. It basically puts public debt in the same bag as R&D, shaping a very schizophrenic agenda.

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