LILICO Andrew looking down

Andrew Lilico is Executive Director and Principal of Europe Economics.

The “Five Presidents’ Report”, Completing Europe’s Economic and Monetary Union, continues the discussions in the European Union and the euro area in particular about two key topics:

  • How to extend the European Union’s project of building ever closer union
  • How to respond to the Eurozone crisis

As is well-known, the Five Presidents propose developing economic, financial, fiscal and political union within the Eurozone, with a programme of measures in three stages, to be complete by 2025.

There are many fascinating and important issues raised by the Five Presidents’ Report. However, I understand the House of Lords European Union Committee to be especially interested in its implications for the UK.

Much discussion of the implications for the UK of the development of economic, financial, fiscal and political union in the euro area has regarded the impacts on the UK as largely indirect, arising from the interest the UK has in economic, financial, fiscal and political stability in one the main economic zones with which it trades and invests (the euro area) and with which it interacts over broader political issues within the European Union.

And indeed, there are important issues for the UK arising in this way.

A second set of issues discussed, in this respect, concerns whether deeper political integration within the euro area might lead it to have common interests which diverge from those of the non-euro EU and to tend to vote as a bloc within the EU, affecting policymaking – with the potential implication that the euro area tends to set policy for the whole EU (because it has a collective qualified majority).

Meaning that the UK’s position as an EU member might increasingly resemble that of non-EU European Economic Area member Norway, which must abide by Single Market rules even though it has no voting influence over those rules.

That is a topic about which I have written in the past at some length and regarding which several committee members are probably aware of my views.

On this occasion, however, I would like to emphasize that neither of the above effects — the UK’s general interest in Eurozone stability or its concerns about being outvoted by the Eurozone in Single Market policymaking — is the main (or at least most concrete) way in which the development of much deeper integration within the euro area should be expected to affect the UK.

The most concrete set of effects for the UK arise from the implications for the EU’s institutions of greater political integration within the Eurozone.

The Five President’s Report anticipates the Eurozone having a treasury, with tax and debt-raising powers and powers to spend.

Such a treasury function would clearly require political oversight, and indeed there is now an ongoing discussion about the establishment of democratic accountability mechanisms within the euro area.

For example, it has been suggested (obviously correctly) that the Eurozone political union will need its own parliament.  It will also need its own civil service functions, so as to guide its policymaking.

How will these institutions work together with the institutions of the European Union?

First, is it really credible that there will be both a Eurozone parliament and a European Parliament?  If there were both institutions, would the European Parliament fade in significance?

If there were not two separate institutions (and I believe it simply not credible that there will be), and yet we maintained both functions (both European Union parliament and Eurozone parliament functions) how could the functions of both institutions work within the one European Parliament?

Would there, perhaps, be a Grand Committee of the Eurozone members, akin to the Grand Committee sometimes suggested as a way to implement English votes on English measures?  Would a Grand Committee of the Eurozone be any less problematic than the English version?

The UK funds the EU budget, including providing funding for the European Parliament.  But if the European Parliament were spending a portion of its time operating in Grand Committee as the Eurozone Parliament, would the UK be happy to fund that? If not, how would the UK contribution to the EU’s budget be affected?

If there were urgent business that needed attending to at European Union parliament level but different urgent business that required Eurozone parliament attention, which would have the priority?

Is there not, in practice, the strong likelihood that (especially as the number of non-euro members in the EU fell), the European Parliament’s activities would be more and more dominated by Eurozone parliament activities, with European Union parliament activities becoming of only marginal or occasional interest?

If that were really so, would it be worth the UK having full-scale elections for European Parliament members, or should we switch back to sending delegates for the rare occasions when the European Parliament met as a whole?

A similar set of issues arises with respect to the European Commission.

The Eurozone political union would require a confederal-level civil service. Is it really credible that there would be both a Eurozone civil service and also the European Commission, given that the vast majority of EU members are members of the euro and more are scheduled to join?

I think it’s a little less certain in the case of the Commission than of the Parliament that two sets of institutions could not be maintained, but I still think it very unlikely the Eurozone would want a separate civil service.

The European Commission is funded from the EU budget, to which the UK contributes. If more of the European Commission’s activities consisted of policy analysis relating to the Eurozone political union, would the UK be happy to fund that?  If not, what are the implications for the UK’s contribution to the EU budget?

Suppose that in some case there were an imperfect alignment (or even conflict) of interest between the Eurozone and the European Union (e.g. perhaps the interests of the European Union as a whole might be best served by a liberalising policy in some area but the interest of the Eurozone lay more in greater control or restriction) — how would that be managed by European Commission officials?  Suppose there were time clash or resource clash — how would that be managed?

These issues all appear to me to be extremely concrete and of direct impact upon the UK as a non-euro EU member.  But as far as I am aware there is almost no discussion of them yet.  Perhaps the House of Lords European Union Committee could help stimulate such a discussion?

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