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The Federal Project – Whither now?

Posted: Feb 23, 2017 by Instinctif Partners

On one side you have the ‘’ever closer’’ union which has spent the last 38 years (since the direct election of the Parliament) and multiple Treaty changes to augment power in Brussels. The scope of powers has increased with new competencies (think sports, defence and tourism for instance), former unanimity powers to qualified majority voting and new roles and powers (the EEAS and the High Representative for Foreign Affairs and Security Policy). Just recently the French Government has demanded the equivalent of a Finance Minister and further work is going on to establish a system of own-funds for the EU (not having to take the bowl and pass it around to the Member States). Historically voting records and deals in the European Parliament have had two underlying factors – increasing powers for the EU and making sure the EP gets more of that in relation to the other two institutions [EU Council and the EU Commission].   

But this momentum has stalled with the onrush of Brexit and the reflection of the Trump election in European politics. And this inflection point has created a perhaps irreversible split in the ‘’ever closer’’ union. On one hand there is the federal project which long term politicians do not want to give up. It is the doubling down argument. Supporting evidence is the value of defence coordination short of a European army, comitology changes to expose Member States blame shifting and the demand for euro bonds. Institutions partial to this view are the European Parliament first and foremost. On the other hand is the emerging view of whether the limits of the EU have truly been reached. The recent combustion of the grand alliance in the European Parliament over the election of a new President has shown that the Parliament is now maturing beyond a ‘’us or them’’ attitude to a genuine battle of opinion within it. The rise of parties [I hesitate to label them populists] with stronger views on the EU and their prominent position this side of elections is telling. It is no longer toxic to talk about recalibrating a relationship with the EU that actually reverses ‘’ever closer’’ union.

The culmination of this emerging split is inevitable – the current talk of creating a multi-speed EU. Muted by the leader of the Liberals in the European Parliament and recently discussed at the EU Summit in Malta, there is a growing view that a multispeed EU is the only pressure release going forward. The theoretical breakdown of this is complicated as Member States could effectively choose what Directives they would like to accept. This would create a spiders web of various mini-clubs and ultimately lead to inertia. So this is not really an option. The more likely outcome is defining where the split it would take place and the most obvious answer would be the euro. If you’re in you get an economic and fiscal union  - Finance Minister, risk pooling, euro bonds, redistribution of funds, etc). Out and you get pan-EU regulation, trade and access across industry areas. While this is clearly simplistic you get the picture – to satisfy the federal cravings of certain Member States and leaders you have to sacrifice the EU project as a whole.

Whether this becomes the new normal remains to be seen, but look for signs of a softening up on Treaty Change [post German and French elections], the architecture of one such multispeed structure – Brexit - and finally the reflection conclusions being undertaken by the Member States in March. Multispeed will live or die on these events.