Friday, 12 November 2010

Is direct democracy preventing a solution to the euro problem?

Angela Merkel may have won her battle for a change to eurozone rules last month, but as lawyers grapple with exactly how to make those treaty changes, the devil is proving to be in the details. The greatest irony of the whole situation may be that it is the eurosceptic populations of Northern Europe - who have been the most unfairly hurt by the euro currency crisis - that are proving the biggest block to making changes with real teeth that would stop Southern European states from from again abusing the rules of the common currency.

Ever since the German chancellor reluctantly agreed to bail out the collapsed Greek economy and create a permanent mechanism for similar crises in the future, she has insisted that EU treaty changes are needed to prevent the bail-out being challenged in Germany's constitutional court. So she has called for treaty changes explicitly allowing such bail-outs and also measures to punish eurozone states who abuse the bloc's rules as Greece did. The later element would have the objective of preventing the need for another such-bail-out in the future. The changes are needed urgently, she says, because that future may be of the not-too-distant variety considering the recent economic news coming out of Ireland and Spain.

But while she got an agreement for the bail-out provisions at last month's European Council meeting, she did not receive backing for treaty changes that would permit automatic punishment for eurozone members who don't keep their public finances under control. She wanted such profligate countries to lose their EU voting rights, and she also wanted guarantees that if the bail-out mechanism is used in the future, private banks would also should have to contribute. She had already secured France's support for such a measure at a controversial bilateral summit in September. From that point, it looked like Merkel was quickly gaining support for her proposals among other EU heads of government. After all, nobody wants a repeat of what happened to the euro in the past year, and almost all economists agree that the EU badly needs a mechanism to keep eurozone states' budgets in line.

And yet the proposal for enforcement of fiscal discipline failed. This means that in the future eurozone states will be free to run up deficits and spend irresponsibly without fear of tough retaliation from Brussels - while at the same time knowing that they are guaranteed a bail-out from the fiscally responsible EU states (Germany) if they get into trouble again. The most frustrating element of all this for eurozone economists is that it appears that, in theory, a qualifying majority of EU leaders actually wanted to introduce such a mechanism for punishment. But they couldn't support the idea because the treaty changes it would require would be so large as to require a public referendum in Ireland and in the UK. And nobody wants a repeat of the Ireland fiasco of 2008 during ratification of the Lisbon Treaty.

The assumption, of course, is that such a referendum could only pass in Ireland with great difficulty and would be impossible to pass in the UK. They wouldn't fail on their own merits, indeed most Irish people would probably agree that tough measures need to be put in place to ensure that the euro does not collapse again. And of course, a strong euro is essential for a strong British economy even though they're not in the common currency - although that would be a tough economic concept to sell to the British public. But the assumption at the council appeared to be that any referendum on something EU-related would be certain to fail in the UK and possibly also in Ireland. The new Conservative British Prime Minister David Cameron promised during this year's election campaign to hold a referendum on "any treaty change" with the EU. In Ireland, a referendum on any EU treaty change is required by their constitution. Ireland is the only EU member state to have such a legal requirement.

The minor treaty changes that were approved last month would still require ratification by member states. But it appears that the changes will not require a referendum in Ireland beause they are so small, though no doubt legal scholars in Dublin are looking into that as we speak. But analysts had said a change that would punish profligate member states would have required a referendum in Ireland. In the UK, it looks like David Cameron is hoping that as long as the public doesn't know about the eurozone bail-out issue (most British people don't because the UK didn't have to contribute to it) he's off the hook. Certainly, I would guess that even the most  eurosceptic Tory MPs wouldn't be prepared to kick up much of a fuss over some minor changes that don't affect the UK in any way since it's not in the eurozone. But proposed changes to punish member states and deprive them of voting rights? That sort of change might not have passed the smell test for the eurosceptic backbenchers, and they probably would have demanded Cameron honour his pledge for a referendum.

The idea that it may have been the need for British and Irish referendums that caused this measure to lose support in the council is not only sad, it's downright worrying. Is this going to be the future of EU policy making? The idea seems to be to make just enough change to go right up to the line of what would need public approval in the British isles, but go no further even if its deemed very necessary by the head of the European Central Bank and the largest EU member state. What's even worse is that apparently this hesitation will be made not on the basis that the changes might be bad for the people casting their referendum votes, but on the assumption that the anglophone countries will vote down anything EU-related.

Of course the biggest irony of all this is that it was the referendum-promising policies of Northern European, "fiscally responsible" countries that effectively blocked a treaty change with any teeth. The measure didn't even need to be blocked by the "profligate" Southern European countries that stood the most to lose from that change - it was a non-starter because of the referendum threat. And it was David Cameron, that champion of austerity and fiscal responsibility, who felled an attempt to enforce fiscal responsibility in the eurozone with his perhaps ill-conceived blanket promise for referendi on any and all EU treaty changes.

Perhaps this is just me being cynical. After all, my opinion on direct democracy is one of intense skepticism to say the least. But it seems to me that holding referendums on technical changes in the way the EU works is not only a waste of time, it's also extremely counter-productive. The EU is a pan-national government in formation. It is creating something that has never before been tried on this scale in the history of the world. As it grows, it has to make changes to the way it operates in order to take account of unforeseen bumps in the road like the euro crisis. But if the EU's ability to make these adjustments is held hostage by the eurosceptic population of its outer islands, there's a real problem here. One can make the argument that EU citizens must personally consent to being part of this project, that is a given. But once they've made that yes or no decision, is it reasonable to seek their approval every time the EU needs to make an internal change to the way it operates?

I can tell you one thing, if the United States had been subject to such populist requirements during its development, it's unlikely it would be where it is today. Even such a huge fundamental change as amending the US Constitution, the most sacred document in American government, doesn't require the approval of the public through a referendum. Hell, it doesn't even require ratification by all of the US states! An amendment to the constitution requires the support of two thirds of each house of Congress, and ratification by three fourths of the state governments. And amendments are usually concerning big-ticket issues. They've included the right of women to vote, the prohibition of alcohol (and its subsequent repeal), whether freed slaves should be considered citizens, and the biggie, freedom of speech. Those are issues you could maybe justify putting to a public vote, and yet even the United States, the laboratory of modern democracy, never put such issues to public vote. And British conservatives think that every Joe Six Pack should be able to have a say on whether new rules on financial bail-out mechanisms should come with punitive measures for states that fail to maintain budgetary discipline? Come on!

Perhaps the constitutional change that should be being considered is to Ireland's - fixing the situation where every EU adjustment of operating structures needs to be put to the public for a vote. And perhaps British Conservatives should think more carefully before they blindly promise referendums on every change coming out of Brussels. Because if this is how EU politics is going to be conducted in the future - living in fear of hypothetical referendums on outer islands - this continent is going nowhere fast.


Itkonen said...

really interesting analysis. I have seen in news coverage of that council summit always the explanation for other member states being opposed to the new rules because they are afraid of a referendum in the UK and Ireland, but I didn't think of the implications of this. You're right, f this is how the council is making decisions now, this is like an absurd movie!

Anonymous said...

This referendum lock is a brake in uk's involvement in Europe. Once the other countries will be frustrated enough, they will go further, leaving the UK on the side.
In the short term it is bad. In the longer term, it may have good consequences:
- Without the UK, a core Europe could go faster towards political integration.

- In the UK, the political class has played for too long the card of nationalism and euroscepticism. The right wing press misinform the public, and the mainstream media and politicians are happy to take a moderate eurosceptic stance at best. With this referendum the political class will have to argue in favour of Europe if they want to keep the UK in it. If anything it will be good for democracy and the quality of the political debate in the UK.

Anonymous said...

What is it about US paternalists? Is Paternalism a compulsory subject in the US schooling system?

Had true Democracy been in place in Europe, there wouldn't have been a Euro fiasco in the first place.

The Euro wasn't introduced for reasons of economic efficiency. And for the most part it wasn't introduced with the consent of the People. Instead it was forced upon the People by megalomaniac politicians trying the write themselves into the history books as the "Founding Fathers of Europe".

Where people were given a vote on the matter (as in Denmark and Sweden) they quite sensibly voted NO, despite the fact that elites from both left and right supported it. The British government didn't even bother because it knew that the people of Britain would never be conned by such a transparently idiotic scheme.

Of course, the country that one might expect to be really suffering from the GFC (because of its relatively large banking sector) is Switzerland - home of Democracy. But Lo!! What do we find? The democratic Swiss have quite sensibly kept themselves at arms' length from the Euromess and are doing quite well for themselves.

On the broader topic of Democracy, isn't it rather an odd thing that wherever people are given a free choice in the matter (Switzerland and about half of the US states) they vote to adopt Democracy. And isn't it rather an odd thing that people who enjoy Democracy do not use their democratic rights to repeal it - even though it is a straightforward exercise to call a referendum for that purpose. (In fact, in California there have been three attempts over the years but they were either beaten at the ballot box or withdrawn in the face of imminent defeat).

Of course, I suppose that diehard Paternalists would simply claim that the Stinking Masses are too stupid to be given a vote on such matters. Important decisions must be left to super-wise people. People rather like . . . well . . . rather like themselves!!