Catherine Day, the secretary general of the European Commission, is certain of one thing: the way forward for the union is greater fiscal harmony
SUBSTANTIAL CHANGES to the economic governance of the euro zone will have to be agreed by member states if they are to avoid a repetition of the crisis engulfing them, according to the secretary general of the European Commission, Catherine Day.
The changes envisaged would involve amendments to existing European Union treaties, transferring significant new powers to Brussels, which would necessitate the holding of a referendum in Ireland. Outline proposals will be presented by president of the European Council Herman van Rompuy to the EU heads of government summit in December.
“The future direction of the EU is being defined in this crisis,” Day said. “We are now writing the second chapter of the euro.”
The sort of changes envisaged, and which Day supports strongly, include much deeper European Commission oversight of euro zone member states’ national budgets. Approval for annual budgets would have to be obtained from the commission before proposed fiscal measures could be implemented. If approval was withheld by the commission, budget proposals would have to be changed and mandatory sanctions would be applied automatically on member states that did not adhere to the rules.
The proposed changes would amount to a “big transfer of sovereignty,” said a commission official, speaking on condition of anonymity, who is also one of the EU officials on the so-called troika (the European Commission, European Central Bank and the International Monetary Fund) battling the crisis in three euro zone member states in assistance programmes – Ireland, Greece and Portugal.
“Personally, I would not support something like this if it did not have democratic sanction,” said the official. Day, who is from Dublin and is the most senior official in the commission, agreed, notwithstanding sharp divisions expressed in Ireland during recent EU referendums.
“There are times when you have to put things to the people. It is healthy to have a wide public debate and we shouldn’t be afraid of the debate,” she told a group of Irish journalists this week in Brussels.
Irish people would have to ask themselves whether “Europe [was] the cause of the problem or the solution?” She maintained that the union and the ECB had “saved Ireland” in the current crisis.
Treaty changes to allow for commission oversight of euro zone member state taxation and spending policies would not be about harmonising everything, she said. She instanced the sort of differences between north European countries that generally have high taxes and high levels of social services, and southern European countries that have the opposite, as being outside what the changes would seek to affect.
“But public finances [in euro zone member states] must be sound,” she insisted. “The question is what to do when a country goes into excessive deficit?”
She said euro zone member states needed to put in place “the necessary policy instruments in full recognition of our interdependence.” There was a need to track individual governments and “put the euro dimension into policymaking in member states before decisions [are taken]”. National parliaments would have to take the euro into account much more seriously when considering fiscal policies, she suggested.
In the past, France and Germany failed to adhere to Maastricht Treaty spending, and deficit limits and sanctions that could have been applied to them by the European Council were not. Day argued that euro zone member states that failed to follow new fiscal oversight rules, should they be agreed and implemented, should suffer sanctions. These should be triggered automatically to prevent larger member states acting with impunity, or states doing self-interested bilateral deals to stymie the uniform application of the rules.
Referring to the recent apparent ascent of France and Germany, evidenced by the high-profile role played by French president Nicholas Sarkozy and German chancellor Angela Merkel, especially in relation to Greece, Day spoke of the “Franco-German duet which we absolutely need at a time of crisis”. But, she added, we need also to find a better way of working it. Referring to the Franco-German public summoning of Greek prime minister George Papandreou to Cannes, Day said: “You have to look at things in the context they happen.”
Papandreou and other euro zone leaders had agreed “very far-reaching decisions” in the October meeting, including a new Greek bailout and a 50 per cent private sector write-down of Greek debt.
In what another commission official described as “a breach of confidence”, Papandreou left the meeting and announced a referendum on the package, never mentioning any such suggestion during the negotiations. “Our happiness lasted less than 48 hours,” said the official.
Day spoke of the rise of “intergovernmentalism” – member states acting together outside EU structures – which she said was very strong in the current crisis. The way to combat this was to uphold “the community method”, she said, referring to member states working together by consensus, and the commission acting independently of individual member states.
As smaller member states viewed the Franco-German alliance with concern, she predicted the longer-term effect would be to strengthen commitment to the commission among the smaller states.