Euro zone integration must go ahead, but not as a technocratic project

Largely lost in the fog of war and plethora of meetings over Greece this week was an initiative about the future of the EU that deserves public attention despite the somewhat portentous title that has attached to it. And its somewhat underwhelming content.

The so-called "Five Presidents' report", authored by Jean-Claude Juncker, Donald Tusk, Jeroen Dijsselbloem, Mario Draghi, and Martin Schulz (presidents of the Commission, Council, Eurogroup, ECB and European Parliament respectively) outlined plans to strengthen economic and monetary union through closer integration of the euro group.

The report had been supposed to be a central theme for the summit discussions but has been overshadowed by crisis management of a situation which for many epitomises precisely why the imperfect, underdeveloped project that is economic and monetary union urgently needs remedial work. And despite a general lassitude throughout the union for further constitutional and institutional upheaval.

With the UK determined to undo the integration process – specifically to insulate and protect itself from being disadvantaged by decisions taken by the euro zone – the timing might appear unfortunate. But it was ever so, there is never a right time and the union cannot continue to long-finger such a debate.

The Five set out a mix of short- and long-term reforms in three phases towards 2025 , some building on existing projects, such as the fiscal compact and the substantially complete banking union, or on current treaty provisions.

Other measures will involve the creation of new institutions, such as a euro area system of competitiveness authorities, to do work that is undertaken through political agreements. The net effects: to provide mechanisms that better prepare the euro zone collectively for economic shocks (like a European deposit insurance scheme), to boost competitiveness and to strengthen the disciplines on member states that since 2011 have increasingly tightly constrained national budget strategies.

Dramatic divergence

Given the dramatic divergence between member states – be it in unemployment rates that vary from 4.7 per cent in Germany to 23 per cent in Spain or the share of low-skilled in the workforce ranging from 15.1 per cent in Estonia to 56.3 per cent in Portugal – stage two envisages making the convergence process more binding through, for example, a set of commonly agreed benchmarks for convergence which would be of a legal nature.

The report is disappointingly conservative in not alluding to new fiscal capacities – a national competence – or debt mutualisation, still a German taboo. Part of the purpose is to avoid talk of systematic cross-border fiscal transfers which many feel are crucial to convergence and eventually inevitable. But it includes a more vague call to create a “fiscal stabilisation function” and proposes a European Fiscal Board to act as an independent check, albeit advisory, on the conduct of fiscal policy in the same way national bodies, like the Irish one, do. A board, the report argues, would facilitate co-ordination of fiscal strategies without going as far as creating a common EU position, but it might lead to the creation of a common European treasury.

Federalising logic

The report undoubtedly includes important and worthwhile elements, and addresses a clear need with a federalising logic for the development of EMU that is impossible to argue with – even David Cameron has spoken of the need for "you guys" in the euro to integrate more closely.

But the approach has a “cart before horse” quality that should cause European capitals to pause.

The challenge facing the EU is twofold: to provide strength and credibility to the euro, and to the legitimise the project in the eyes of the citizens. Both are intertwined – and both are essentially political more than technical challenges.

Nothing will do more harm to the credibility of the euro than if it, and the economic disciplines that will be ever-more closely associated with it, are seen as the impositions of a Brussels technocratic elite removed from public accountability – one that is captive to a “there-is-no-alternative” austerity agenda, a dangerous political consensus that appears to be dictated by business and the wealthy.

The answer to every problem can not be “new institutions” or “new guidelines”.

It is the popular belief that the euro and its disciplines are essentially a conservative project designed specifically to reduce political choices that is helping to feed rampant euroscepticism throughout the union.

That is why the integration process must place legitimacy and accountability, the deepening of the EU’s democratic roots, and the creation of a more genuine common political culture at the top of its priorities – not, as the Five would appear to suggest, a pious afterthought.