The European Union is stuck in no-man’s-land―needing to reform to keep up with changing risks and voter sentiment, yet hardly able to do so because of internal divisions and lack of support from the European public. The negotiations on the next seven-year budget framework may help address some of the most pressing needs for adjustment. Because of their technical nature, however, these talks will do little to restore voter confidence in the EU, leaving a heightened risk of political disruption.
Stefan Lehne
More from this author...The current debate about EU reforms is marked by a whole series of paradoxes. First, although there is much talk about relaunch and innovation, the current reform narrative has a fundamentally defensive and conservative undertone. The EU has been weakened by the recent financial and migration crises, shaken by Brexit and the anti-EU policies of U.S. President Donald Trump’s administration, and challenged by the political rise of EU-skeptical populist parties. The pro-European establishment therefore embraces change in a way similar to Prince Tancredi in Giuseppe di Lampedusa’s The Leopard: “If we want things to stay as they are, things will have to change.” There is a pervasive sense of insecurity in today’s Europe. For the defenders of the EU, Emmanuel Macron’s election to the French presidency and the EU’s economic recovery has provided a window of opportunity “to fix the roof [while] . . . the sun is shining,” as European Commission President Jean-Claude Juncker put it last year. Consolidating the eurozone, containing illegal migration, and strengthening the EU’s political and military defenses against external threats have emerged as the core elements of the debate. Whereas in the early years of European integration reforms were about tearing down obstacles and opening up opportunities, they are now about defending the achievements of earlier decades and keeping the populist demons at bay.
Second, the same discontent that fuels the drive for change is what makes reform so difficult, because skepticism about the state of the EU has brought a number of populist governments to power. Any significant reform step would have to gain the agreement of all member states―difficult to do at a time when some of them are run by governments that do not want the EU to prosper. In general, the political orientation of member states has become more diverse in recent years, and the political common ground among them has shrunk. If the reform required changes in the EU treaty, it would also have to be ratified by all member states in a parliamentary vote or referendum. Widespread anti-EU attitudes, combined with the increasing demand for direct democracy, make any ambitious reform project extremely risky. In fact, the medicine could turn out to be more dangerous than the disease, as former British prime minister David Cameron found out. Reform at the wrong time and of the wrong dosage might trigger a series of referenda, which could turn into a major threat to the EU.
The third paradox concerns the role of the public in this process. Leading politicians, Macron in particular, have claimed that if reform is necessary to deal with citizens’ dissatisfaction, the public should play a key part in shaping the reform agenda―hence his idea of holding public conventions in the member states with the aim of a broad-based discussion that would feed into the governmental reform efforts from the bottom-up. However, although such public consultations were launched in a number of EU countries, their political leadership has no intention of abandoning their accustomed top-down approach. The French-German Meseberg Declaration of June 2018, intended to set the framework for a reform program, was based on extensive consultation between the governments and the European Commission, but included no input from public discussions. There is a risk that the public consultations might turn into a mere public relations gimmick that might exacerbate rather than heal the alienation of the EU public.
For all of these reasons, work on EU reforms promises to be long, messy, and likely to disappoint expectations. However—and this is the fourth paradox—there is a process under way that, although it is not generally seen as part of the reform efforts, will in fact define the EU’s priorities for the coming years, involve significant changes in core policies such as on agriculture and cohesion (aid to poorer regions), and prepare the ground for innovative EU action in areas ranging from research to border security and defense. The elaboration of the new Multiannual Financial Framework (MFF) for the years 2021 to 2027 is a crosscutting negotiation involving trade-offs between groups of member states as well as between policy fields. The work on the MFF will be complex and controversial, but―and that is its greatest advantage―it must be concluded well before 2021 if the EU is to continue to function normally. It is therefore likely that a good part of the reform agenda will be integrated into the work on the MFF and that this process will in fact absorb most of the time and energy of EU decisionmakers.
And yet―and this is the fifth and final paradox―the method of pragmatic incremental adjustment embodied by the MFF process might well be the only way forward in the short term but might not be sufficient to reestablish the legitimacy of the EU in the eyes of large parts of the European public. The campaign for the European Parliament elections in spring 2019 will see an unprecedented mobilization of nationalist and EU-skeptical political forces, which could amount to the toughest political challenge ever to the integration process. If the supporters of European integration have nothing to counter this onslaught but the promise of continuing to muddle through, the outcome of this contest could be very uncertain. There is therefore a need for genuine in-depth reflection about the longer-term orientation of the EU. Although it might not rapidly translate into treaty reforms, it could give the European Parliament election campaign the necessary substance and focus.
The Ever-Reforming Union
For decades, the concepts of European integration and reforms went together. From the early beginnings of the European Coal and Steel Community, integration was conceived as a process, not as a stable construct. Full agreement never existed on where this process was headed. Even the vague notion of “ever closer union among the peoples of Europe,” which had been included in the Rome Treaty in 1957, became contested over the years. With the successive enlargements and the growing diversity of the EU, the advocates of a European federal state lost ground. Although they and the defenders of the national sovereignty hold sharply different views, all agree that European institutions and policies will need to be adjusted regularly and developed in light of changing circumstances.
For most practitioners and theorists of integration, the notion of EU reform has long been associated with treaty change. As an organization based on international agreements, significant stages of the EU’s development had to be anchored in amendments to the treaties. In most instances, they were laboriously negotiated at intergovernmental conferences and ratified in all member states, either through parliamentary vote or referenda. However, the conceptual link between EU reform and treaty change has become looser in the past two decades. Already in the 1990s, when European integration began to touch on issues of greater salience to the public such as monetary policy and internal security, the ratification of a new treaty by the member states became more difficult. Failed referenda in Ireland and Denmark led to protracted delays. The rejection of the Constitutional Treaty by French and Dutch voters in 2004 proved traumatic. Although the less comprehensive Lisbon Treaty was eventually salvaged from this wreckage, largely by avoiding referenda (except in Ireland) in its ratification, many insiders assumed that it would be the last treaty reform for a long time.
The financial crisis from 2009 to 2012 and the massive inflow of refugees in 2015–2016 not only weakened public support for the EU but also fueled the rise of populist parties, which in turn increased the demand for referenda on EU matters. The five referenda held since 2015 all ended with the defeat of the pro-European position. Under these circumstances, the ratification of new EU treaties began to look like Russian roulette. The significant steps taken to reinforce the eurozone were therefore implemented through simple legislation or, in the case of the Fiscal Compact and the European Stability Mechanism, through intergovernmental treaties outside of the EU treaty framework.
The same logic also applies to the current reform debate, which began in response to the UK referendum on leaving the EU. The Bratislava agenda, launched in September 2016, focused on those issues on which the EU hoped to establish its added value, such as migration, external security, and social and economic development, essentially amounting to a repackaging of what was already in the EU’s pipeline. Triggering a process that might lead to more referenda was the last thing on the minds of European leaders. Some of them, including German Chancellor Angela Merkel and Macron, asserted from time to time that treaty reform was not taboo and would eventually happen but quickly added that it would have to be prepared carefully and now was not the time.
The Untouchable Treaty
Most of the governmental contributions to the EU reform debate—but also the European Commission’s initiatives—are thus predicated on the assumption that for the next few years, full-fledged treaty reform is not on the agenda. This broadly shared understanding among the participants has three consequences regarding the future of the process. First, it limits the ambition of the reform project. Although Macron talks about relaunching the EU, in reality, foregoing treaty change means abandoning any far-reaching changes in policies or institutions. Even though the member states have been quite creative in interpreting the existing treaty provisions to make eurozone reforms possible, there is a limit beyond which the existing treaty framework cannot be stretched. Macron’s more visionary concepts, such as a powerful common finance minister or a large eurozone budget distinct from the EU budget, are therefore highly unlikely to become part of any short- or medium-term reform plan.
Second, there will not be a single overarching reform process, but rather a whole set of building sites, working in parallel and each following its own dynamics. For the most part, the various formations of the Council of Ministers will continue to deal with reform projects within their purview, bringing them up to the European Council at decisive stages of the negotiations. Inevitably, some projects will get stuck, whereas others will move forward.
It is true that European Council President Donald Tusk’s Leaders’ Agenda, approved by member states in October 2017, provides a common frame for the process. It essentially consists of a list of issues to be discussed by the European Council at all sessions leading up to summer 2019. A special meeting in Sibiu, Romania, in May would then prepare the Strategic Agenda for the years up to 2024―a broad set of priorities similar to the one the European Council adopted in 2014.
Although the Leaders’ Agenda is certainly helpful in making the work of the European Council more predictable, it is unlikely to determine the pace and substance of the reforms. This fact became evident when the deadline was missed for finalizing the asylum reform package in June 2018. The dynamics of negotiations on difficult political issues such as migration, eurozone reform, or defense will be determined by political developments in the member states, consultations between key countries, and the interaction between the various EU institutions.
Third, the impossibility of treaty change means that Macron’s two-speed Europe cannot be implemented within the treaty framework but might actually become more likely outside of it. There are provisions in the treaty for “enhanced cooperation” among a number of member states, but they are formulated in a restrictive way and have so far been used only very rarely. In the absence of a treaty reform that allows greater differentiation, it appears possible―even likely―that more ambitious member states will choose to pursue certain objectives together outside of the EU framework. Macron’s military intervention force might fall into this category, as may his idea to agree on a harmonization of corporate taxes, initially just with Germany. Such an approach could―like the original Schengen Treaty―prepare the ground for an advance in European integration but could also drive the member states apart. It depends on the topic, the context, and the attitude of those countries planning to march ahead.
The Reform Process—Lots of Smoke, but Little Fire
The first phase of the reform discussion, from the Bratislava agenda of September 2016 to the Rome Declaration on the sixtieth anniversary of the Rome Treaty in March 2017, was marked by the commitment of the twenty-seven EU member states to stick together despite the shock of Brexit and the recognition that the EU would have to change to reconnect with the alienated elements of the European public. As unity was the order of the day, the process avoided controversial issues and focused on issues of relevance to EU citizens, such as internal and external security, including migration and terrorism as well as economic and social development.
The reform debate gained momentum with the arrival of Macron. Elected to the French presidency with a strongly pro-European message, he wished to place his demanding domestic reform agenda in the context of a broad overhaul of EU policies. Macron conceived his pro-European stance as a response to the rising forces of nationalism in many EU countries. In his view, not the false promises of the nationalists but only a strong “sovereign” Europe could protect the EU’s citizens from the manifold negative consequences of globalization. His core concerns related to the creation of a substantial eurozone budget for investments and stabilization in the face of economic shocks, which would be governed by an EU finance minister, but he combined this proposal with a large number of other suggestions, ranging from harmonizing corporate taxes to a European military intervention force, most of them along the theme of “l’Europe qui protége.”
Macron betrayed a rather schizophrenic attitude regarding the place of the public in European politics. He insisted that the time when Europe could be built by an enlightened elite in isolation from the people was over and proposed organizing democratic conventions in the member states, aiming at a comprehensive and open European debate that would develop the political choices for the European Parliament elections in 2019. His strong personal leadership ambitions, however, along with a plethora of concrete initiatives and the tight time frame envisaged for public consultations, seemed to leave little space for genuine bottom-up input into European decisionmaking.
The fate of Macron’s initiative depended on the response from Berlin. In today’s large and heterogeneous union, French-German agreement is no longer a sufficient basis for EU action, but nothing can be achieved without it. Because of the German elections and the long and tortuous coalition-building process, this response was long in coming. Only at the beginning of June 2018 did Merkel reveal her own approach to reforms in a newspaper interview. This interview was followed by intense French-German consultations, resulting in the Meseberg Declaration of June 19, 2018, which was meant to serve as a frame of reference for the consultations of the twenty-seven EU member states.
The Meseberg Declaration pretends to present a comprehensive approach to EU reforms, touching on all major subjects of the current European debate, from foreign and security policy to climate change, but it is really about monetary union. On this issue, France and Germany hold sharply different views, with the former demanding new mechanisms to share risks and mobilize funding for investment and stabilization, and the latter insisting on risk reduction and financial discipline. At Meseberg, the two sides reached agreement on using the European Stability Mechanism as a backstop for the single resolution fund that had been set up to deal with bank failures. The other main element of completing a banking union, a common scheme to insure bank deposits (very controversial in Germany), has been kicked into the tall grass.
Angela Merkel’s main concession to Macron concerned the creation of a eurozone budget to promote competitiveness, convergence, and stabilization beginning in 2021. The document does not indicate the size of this budget, but Germany has made it clear that it will be far smaller than Macron’s initial concept of several percentage points of the EU’s gross domestic product. Even in this downscaled version, the proposed budget will run into opposition from the more conservative parts of Merkel’s party and from a number of Northern European governments keen to limit EU expenditures.
The June meeting of the European Council was supposed to provide guidance on the development of the monetary union, but after a brief discussion ended up merely endorsing the next steps toward completion of the banking union, thus leaving the debate on the eurozone budget for later. Once again, the meeting was completely dominated by the migration issue. Although the EU leaders reached a fragile agreement on restricting the access of refugees and migrants to the EU, the deep divisions between member states on this issue will continue to overshadow EU politics and hamper any efforts toward reforms.
The Other (Real) Reform Process
The MFF, now proposed for the period 2021 to 2027, essentially has three functions: it sets the overall amount of what will be spent by the EU, decides where this money will come from, and defines what it will be spent on.
Already the first element is directly linked to the debate on the EU’s future, as it establishes in financial terms how much “Europe” there will be over the coming years. Although the EU will lose the UK, one of its biggest net contributors, and thus face a shortfall of 10 to 12 billion euros, the European Commission proposed a moderate increase of expenditures to 1.28 billion euros, which corresponds to 1.11 percent of the EU’s gross national income (GNI)—up from 1 percent. The European Parliament would like to see a larger budget, whereas a number of mostly northern member states demand a reduction of overall spending.
On the revenue side, the European Commission aims at somewhat reducing the dominant share of GNI-based national contributions (currently 70 percent) by creating new sources of income derived from the EU Emissions Trading System, corporate taxes and taxes on plastic waste, and an increased share of customs duties. This approach should mitigate the tendency of member states to look at EU budgets not as genuine European added value but rather as net financial contributions (that is, the balance of national contributions and transfers received from the budget).
The real impact on how the EU works will come through redistributing the money that is eventually raised. The MFF will set the maximum amounts for the various categories of expenditure. Together with the revision of the major financial instruments, it represents a powerful tool for advancing EU reform.
Through its proposal, the European Commission aims to align expenditures to the political priorities of the EU. Currently, about 73 percent of the current budget is devoted to the Common Agricultural Policy and the Cohesion Policy, which represent the political priorities of the last century rather than the current one. Because these programs are fiercely defended by powerful lobbies, the proposed reduction of both by roughly 5 percent has to be considered a rather bold move that will be much fought over.
To adjust expenditures to the EU’s new challenges, the European Commission suggests a massive increase in the funding for border control and migration management, including the expansion of the EU border control agency (FRONTEX) to a standing corps of 10,000 border guards and―for the first time―considerable funding for military defense. Expenditures in the areas of research, innovation, and digital technology should also be significantly expanded. The European Commission has also laid out its own version of a future eurozone budget―not very far removed from Angela Merkel’s ideas on the subject―in a program to support structural economic reforms in the eurozone countries (25 billion euros) and a new Investment Stabilization Function (30 billion euros), which would offer loans to countries experiencing large, asymmetric economic shocks.
The idea of linking access to EU funding to compliance with the rule of law promises to be particularly controversial in the light of the relevant discussions on Poland and Hungary. The concept of considering the reception/integration of migrants when allocating cohesion funding also will not go down well in member states hostile to migration.
The MFF first will be negotiated between the governments, leading up to a unanimous decision by the European Council, in turn followed by an interinstitutional negotiation involving the European Council, Commission, and Parliament, the outcome of which is traditionally close to the compromise achieved in the European Council. Given the high financial stakes, the deep divisions among member states, and the loss of resources resulting from Brexit, the negotiations will inevitably be very difficult. The European Commission would like to see an agreement before the European Parliament elections in May 2019, but delays and blockages are likely.
There are three features, however, that distinguish the MFF process from the work on the various reform projects discussed above, all of which make the MFF more likely to succeed. First, the negotiations cut across all sectors of EU activities, allowing for trade-offs and package deals. No country will be completely satisfied in the end, but every government will have some wins to present to its public. Second, money is highly fungible and perfectly suited to help overcome blockages and smooth the swallowing of some bitter pills. Third, as the current financial framework runs out in 2020, there is a real deadline for this process. Without a new MFF, there is a risk that the launch of key financial programs will be delayed, at considerable cost to the member states and the EU as a whole.
For all of these reasons, it is highly likely that work on the MFF will absorb much of the time and energy of EU decisionmakers, and that a good part of the EU reform agenda will be de facto integrated into this process. A well-run MFF process could facilitate many incremental improvements. It could focus EU action on projects where there is genuine European added value and contribute to a more efficient and cohesive EU.
What even the best MFF process cannot deliver, however, is a convincing narrative regarding the future of the EU. In March 2018, the European Commission submitted a white paper outlining five possible futures of the EU: carrying on as now; limiting the EU to the single market; allowing the more ambitious member states to move forward; doing less more efficiently; and finally, doing much more together. These options were never properly discussed in the ensuing months, as the leaders of the EU preferred to avoid a divisive debate.
Now, however, the time for such a debate has come. Macron was right when he underlined the importance of the European Parliament election of spring 2019. The preeminence of the old pro-European “grand coalition” of center-right and center-left parties will be challenged in this election. Anti-EU and anti-migration forces are likely to make major inroads, but new pro-European parties, including Macron’s La République En Marche, also could perform well. The overall constellation of political forces resulting from the elections could determine the course of the EU in the coming years.
Although previous European Parliament elections have been essentially twenty-eight parallel national elections determined by national political dynamics, the stakes are higher this time, and there is both an opportunity and a need for a substantive transnational discussion on the future of the EU. To launch and sustain such a discussion is the shared responsibility of the European political parties, but also of the EU’s institutions―in particular, the governments of the member states.