IHS Global Insight Perspective | |
Significance | While European Commission president José Manuel Barroso delivered the European Union's (EU) first "State of the Union" address, outlining the bloc's priorities, finance ministers met to approve an overhaul of financial regulation. |
Implications | Given the ongoing impact of the global economic downturn on the EU, Barroso's speech inevitably focused on economic policy and large-scale infrastructure spending plans. |
Outlook | Barroso outlined an ambitious work programme. However, as was demonstrated by the finance ministers' meeting to approve Commission proposals for an overhaul of financial regulation, little progress is likely without the tacit and explicit endorsement of the governments of the bloc's 27 member states. This highlights that despite the changes envisaged in the newly enacted Lisbon Treaty, momentum continues to be dependent on national agendas and policies. |
An Ambitious EU Agenda
European Commission president José Manuel Barroso yesterday delivered the European Union's (EU) first ever "State of the Union" address to the European Parliament. In the speech, Barroso outlined the policy priorities he will be pursuing, receiving only a lukewarm response from the MEPs in attendance. The anticipated lack of interest in the speech originally prompted senior MEPs to propose that deputies not attending the speech should have their allowances docked. Although this suggestion was later abandoned, it shed light on concerns that Barroso's speech lacks relevance.
Given the ongoing impact of the global economic downturn on the EU, Barroso's speech inevitably focused on economic policy, with an emphasis on expanding the bloc's regulatory supervision, as well as proposals for large-scale infrastructure spending plans.
- Economic Policy and Regulation: Barroso called on member states to accelerate the pace and increase the depth of structural reforms over the next 12 months and to tackle macroeconomic imbalances, which threaten to undermine stability, through programmes of fiscal consolidation and growth. In respect to financial regulation, the Commission will propose a ban on abusive short-selling practices, as well as credit default swaps. In addition, the Commission will look to propose legislation that would outlaw bonuses encouraging higher-risk behaviour. The Commission is expected to present its proposals for taxes on financial activities before the end of the year, while suggestions to improve oversight of derivatives and credit-rating agencies, as well as a framework for bank resolution and crisis management, are also due, with a view to having a new regulatory framework for the financial sector in place by the end of 2011. Finally, Barroso highlighted his desire to give the EU a stronger voice on the global stage and revealed that he would be pushing for better global economic co-ordination at the G20, as well as reform of international financial institutions with a view to strengthening regulation and putting in place better safeguards.
- Job Creation: The Commission is readying proposals for a "European Vacancy Monitor", which would look to strengthen the creation of a single jobs market. The Commission will also look to finalise plans for a single European patent, valid across all 27 member states. In addition, it will also seek to cut the bureaucracy that is hampering the creation and development of small and medium-sized enterprises (SMEs), with the Commission aiming to generate savings of up to 38 billion euro (US$48 billion).
- Security and the Global Stage: The Commission is planning to propose new measures for the policing of the bloc's borders and to clamp down on the exploitation of illegal immigrants. In addition, the Commission will seek to develop an internal strategy against organised crime and terrorism. The Commission president also called on governments to respect human rights, in what was viewed as a veiled criticism of France's controversial policy of repatriating Roma to Romania and Bulgaria. Barroso was also eager to highlight actions that could increase the EU's visibility as a global player. He underlined that the EU will continue to press for credible commitments on climate change and emissions cuts. The Commission has committed an additional 1 billion euro in support of the Millennium Development Goals, while new proposals for developing the EU's crisis-response capacity are likely to be presented in October.
- EU Budget: The Commission is due to present first suggestions for a budget review in October, with negotiations on the bloc's next seven-year budget (2014–20) due to start next year. Barroso indicated that the new budget should be geared towards "intelligent spending" by looking simultaneously at the European and national-level budgets. Possible efficiency savings could be made in areas such as energy, infrastructure, research and development (R&D), and defence. The budget discussion is likely to raise tensions between member states, especially when controversial programmes such as regional aid and farm subsidies are being discussed.
- Energy and Infrastructure: The Commission is due to present an action plan on energy, infrastructure, and energy efficiency during the coming year, with energy liberalisation likely to feature prominently. The aim of the action plan will be to explore new sources of financing for European infrastructure projects, as well as expanding proposals on the launch of European bonds, in conjunction with the European Investment Bank (EIB), for EU projects. The Commission will also work to expand the network of public-private partnerships. The Commission also announced its aim of creating 3 million "green jobs" by 2020.
Finance Ministers Approve Budget Oversight
Barroso's speech was conducted against the backdrop of a meeting of Europe's finance ministers to discuss the economic crisis and the Commission's proposals to tighten regulation of the banking industry. In addition to agreeing to provide a further 9-billion-euro loan to crisis-stricken and debt-laden Greece, the ministers agreed on an EU-wide system to strengthen budgetary oversight with a view to safeguarding against a similar crisis in the future. The finance ministers agreed to mutual supervision and oversight of each other's budget. However, the United Kingdom won a concession on this, gaining the right to first present its budget to the national parliament before presenting it for scrutiny by the EU and other finance ministers.
In order to strengthen the EU's governance, finance ministers have agreed to a "European Semester", whereby in January the Commission will produce a survey of the state of the economy identifying problems faced by the Eurozone and the bloc as a whole. EU member states would then be required to submit budgetary plans by April for the Commission to assess. This would be followed in June/July by an opinion from the Commission on the plans, as well as possible country-specific guidance. The "Semester" is due to get under way from 2011. Sanctions for breaching the rules are yet to be decided, but the Commission is due to present proposals on 29 September that would impose automatic sanctions on countries breaking the rules, with the only way to block action being through a qualified majority in the European Council.
EU finance ministers also agreed on the creation of new bodies to co-ordinate and oversee this strengthened governance. As previously proposed by the Council, Commission, and Parliament, a European Systemic Risk Board (ESRB) and three new European Supervisory Authorities—a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA)—would form the core of the new financial regulation (see Europe: 6 September 2010: EU Agrees Deal Tightening Financial Supervision). Under the agreement, newly created EU regulators would have the authority to overrule national authorities in three situations: if EU law is breached; if two or more national supervisors disagree on required action; and when an emergency has been called by member states. They would, however, be unable to approve any measures requiring the allocation of taxpayers' money.
Consensus on Pan-European Taxes Remains Elusive
Despite the success in agreeing on measures to strengthen governance, the goal of implementing taxes at an EU-wide level to deter high-risk behaviour in the financial industry remains elusive. The issue of whether contingency funds to cover the cost of any future banking sector bailouts would be gathered together in a common fund or would be kept in national coffers to be spent by governments to balance their accounts remains divisive. In addition, proposals for a "Tobin Tax"—whereby a tax on financial transactions would be charged to boost spending on low-carbon infrastructure, aid for the developing world, and domestic social programmes—found even less consensus among the gathered ministers.
Outlook and Implications
The ambitious agenda proposed by Barroso struck all the right notes and kept to the well-established themes—economic policy, security, and EU influence on the global stage—that have occupied the Commission for years. The "State of the Union"-style address was intended to capture the new age of EU politics in the post-Lisbon Treaty era. However, the speech largely fell flat. The principal problem for Barroso and the Commission remains that the majority of policies that will be pursued over the coming year are dependent on support from the 27 member states. This was brought into sharp focus by the fact that the speech was occurring against the backdrop of a meeting of EU finance ministers, where representatives of the 27 member states had the ability to accept or reject Commission proposals for enhanced regulation of the financial services industry. Barroso is working to expand the influence of the bloc in national politics and as a result some of his more controversial proposals are unlikely to gain traction. The most notable of these is the proposal to use the financial clout of the bloc to issue European bonds, a policy initiative that has in the past been rejected by member states. In addition, policies to tighten surveillance of member states' budgets, including possible sanctions for those that run excessive deficits, have met with endorsement but Eurosceptic countries, such as the United Kingdom, have raised concerns that this could lead to an erosion of fiscal sovereignty.