by Wes Himes
When European Commission President Jean-Claude Juncker released his Commission’s 2018 work programme on 24th October in Strasbourg, he did not take an easy path. While more prudent commentators might have suggested a more benign programme of completing unfinished business, Juncker bypassed the usual laundry list of initiatives and directed his firepower at the heart of national capitals. To the European President and his assembly of Commissioners, the path to the future lies in a more integrated Europe, an opportunity presented to it by Brexit. But what does this mean beyond the headline grabbing element of a single European President and Minister of Economy and Finance?
It is commonly believed, but not universally accepted, that next steps to a more integrated Europe revolve around certain critical concepts:
- A fiscal policy which caters to redirected funding towards the weaker areas based on a central decision-making and governance – Some may call it targeted assistance, other mutualizing fiscal transfers. Either way, any further integrated system will require the idea of fiscal cooperation to mirror that of monetary policy. The emergence of the Juncker fund is a pre-cursor to this, albeit on a small scale. This fund simply leverages private sector or other funds in which the Commission puts around 10% of the fund up front to absorb losses. However, work is underway to double that fund to 600 billion euros. While this is targeted investment and no way a sign of significant fiscal transfers, it does develop the narrative that the EU can and will begin to consider large levels of funding above and beyond what exists today.
But the serious business is in the transformation of the European Stability Mechanism into the European Monetary Fund. This calls for a dedicated European area budget line, a stabilization function and a backstop for the Banking Union. This is the first stop on the way to a fiscal transfer system which would underpin and counterbalance monetary policy, obviously within the Eurozone.
- A system of own resources to crack the dependence on MS contributions which form the bulk of EU revenue [80%] – The EU has little in the way of own resources (customs duties and 0.3% of harmonised VAT) and instead relies on Member State direct contribution of billions of euros. This is then doled out across the Member States based on the basis of all sorts of formulas and quotas depending on the programmes in question. The 2018 work programme stipulates a multi-annual financial framework followed by a next generation of new programmes and new own resources. Recent EP Parliament debates on the next year’s budget have also explored the ability to raise revenues through such mechanisms like climate levies and the financial transaction tax. An own resource system would centralize the financing of the EU leaving it to raise funds outside of MS contribution just as devolution has done for regions across Europe. This would allow the EU to alter rates for own funds to leave it less reliant on MS contributions.
- Competence extension and the thrust of hard power – the loss of the UK brake on more integrated Europe has released a plethora of minor power grabs and major forages into new powers. At one end you find small technical matters being amended to the favor of the Commission (such as Delegated Act assessments for environmental issues) to the start of EU defence alignment. A recent proposal by High Level Representative for Foreign Affairs and Security Policy, Federica Mogherini, have indicated the pre-cursors of a dedicated connection of military forces logistics. The Permanent Structured Cooperation (PESCO) along with an EU defence fund are signs of a more bullish identity to the EU in a field long the harbor of national interests. The result will be an evolving EU rapid reaction force, the first of a multi-national military force operating under an EU banner.
- Eliminating the national veto – while simultaneously bringing new competences into the EU purview, the Commission programme directly addresses the use of qualified majority under the cover of increasing efficiency. Its upcoming Communication on ‘’the possibility of further enhancing the use of qualified majority voting and of the ordinary legislative procedure in internal market matters” shows a willingness to accelerate the speed of adoption of legislation. Known as the passerelle in EU vernacular the clauses in the TFEU allow for the Council, and in some cases the EP, to approve the movement of a voting procedure to QMV or the ordinary procedure under certain conditions. We have also seen in the last three years of this Commission’s mandate a willingness to extrapolate sectoral matters to Article 114 for instance. This article assumes a distortion of the internal market as justification for initiatives in nearly any field.
- Delivering the EU brand abroad – no governance area can give itself a brand and identity without appearing to those outside of the area as an entity in its own right. There is no EU football team, while there is a European Day, it is not a holiday across EU 28, no centuries of history to define itself. Therefore it needs to create that identity and creating a foreign policy outside of the national capitals is one such development. However, foreign policy has normally been difficult to achieve at more strategic levels given national competence and vetoes. The fact that a Communication will be launched on the ‘’possibility of further enhancing the use of qualified majority voting in Common Foreign Policy’’ is a major step in accelerating a common foreign engagement. In fact this is one of the passerelle areas where the Council ability to tackle foreign policy areas under different voting arrangements is an easier procedure.
But what does this all mean for companies and people across Europe? The bottom line is that these broad tectonic plates of integration are not often within the power of individual companies to influence. However, this is quite different than being prepared for these changes.
At Instinctif Partners, we have done work on what major political changes mean for businesses and organizations alike. To be prepared one has to:
- Understand the outcomes of the changes to their area of relevance. Imagine you are a company dealing with sensitive tax matters and are expecting limited activity because of the usual unanimity voting system used in such matters. What if the legal base changes to a QMV or ordinary procedure? Even if not an immediate threat the future of such legislation may mean relying less on national taxation decisions and more on EU ones. In such a case you might consider the use of legal backstops to suggested changes. For instance not many groups challenge the legal basis of an initiative. The increasing use of QMV legal basis for sectoral initiatives creates friction between the legal base and the justification of the initiative.
- Look at new opportunities for change. Are you in the area of social goods (services and products with a social purpose) – these goods are often the recipient of generous public funding and any heightened future fiscal transfer/direct assistance may increase the flow of such funds to your area.
- Do you work in areas historically the remit of Member States? Sectors such as healthcare delivery, tourism, sports, education, public service delivery, pensions and culture are usually held in reserve to Member States but under greater competence expansion may come under EU policies. Start thinking of the framework desirable in a future EU centralized function that has material effect through its policies on your market.
- Increased EU funding – the inevitable will happen. The limit of EU GNI [1.2%] to determine the maximum revenues for the EU will eventually fade away and the EU will begin to build a strong capacity for direct funding at larger magnitudes. It is no wonder why some many regional representatives have set up offices in Brussels in the last decade.
There are, of course, competing versions of the same future. President Macron has said as much. And many of the Member States are reluctant to engage in this conversation, preferring the Commission to stick to the existing powers and even refer some back to Member States under the guise of subsidiarity. President Juncker made it clear in his first few days in office that his Commission would be a ‘’political one’’. The 2018 Commission work programme is a testimony to that promise.