Transparency International EU, is part of TIs “anti-corruption movement” focused on happenings in the European Union. It gets around 40 per cent of its funding from the European Commission, itself, although they claim this does not compromise their “institutional integrity and independence”. Let’s hope not! They have just released a report – Vanishing Act: The Eurogroup’s Accountability (February 5, 2019) – which confirms, in case one wasn’t already aware (looking at the Europhile Left here) that the core decision-making body in the European Union – the so-called Eurogroup – (the Finance Ministers of the Eurozone), which “exercises political control over the currency and … the Stability and Growth Pact” – is inherently shady and anti-democratic. The Report finds that the EU’s democratic deficit is intrinsic to its design and resistance to any effective reform. While the Report proposes some changes to the structure and operations of the Eurogroup it maintains the line that the growing lack of democratic oversight in key EU decision-making can be improved. I disagree. The problems are endemic. The DNA of the Eurozone architecture is neoliberal to the core. That ideology has permeated all the major EU institutions and has left the EU citizens without an effective voice in the decision-making process. To resolve that alienation, people are donning yellow vests and taking to the streets. Progressives should encourage these anti-EU protests and support those who desire to abandon these neoliberal institutions. The reformers cannot seem to grasp that the basic structure is the problem. Any steps in the right direction require that basic structure (the Single Market, SGP, etc) to be abandoned. And doing that means the whole house of cards falls down. And it cannot come quickly enough.

As background Transparency International EU have published detailed studies on other significant EU governance institutions:

1. Two sides of the same coin? Independence and accountability of the ECB.

They find that:

“the ECB’s accountability consists of answerability rather than democratic control”.

“members of the Governing Council do not presently file public declarations of interests and assets, a standard precaution in economic and political institutions”.

“Many Executive Board members have gone on to accept posts in private finance, even while none of these highly accomplished civil servants had significant professional experience in the private financial sector prior to their Executive Board tenure”.

“the outdated whistleblowing framework, which does not compare well to international best practices”.

“a much higher level of transparency is needed on the ECB’s meetings with lobbyists.”

2. From crisis to stability: How to make the ESM transparent and accountable.

They find that:

The European Stability Mechanism to be largely unaccountable and it is hard to discern who drives the decisions

“Both the negotiation of ESM bailout agreements and the monitoring of implemented reforms are prone to heavy-handed negotiating tactics and brinkmanship …”.

“The conditionality attached to financial assistance programmes naturally challenges a government’s sovereignty”.

It is hard to discern “who is in charge of ESM programmes”.

“the ESM is outside of the EU treaties. This has real consequences and makes EU-level accountability impossible.”

“it is impossible to hold a non-EU institution accountable at the European level; on the other hand, enabling decentralised accountability by giving each member a veto can worsen the brinkmanship and expose members in need of financial assistance to blackmail.”

3. Investing in Integrity? Transparency and democratic accountability of the European Investment Bank

They find that:

There is a problem of integrity, in that senior managers “have too much discretion to favour companies from their ‘home’ countries”.

“The Management Committee does not take responsibility for the approval of projects”

“Management Committee decisions is exacerbated by a lack of transparency, as none of the EIB’s governing bodies publish their minutes”

So overall, the studies to date have revealed a major democratic deficit in the structures and operations of these key EU institutions.

The Report on the Eurogroup raises the stakes even higher and is salutory reading.

Written by Benjamin Braun and Marina Hübner, it sketches out the workings of an inner group of the EU political elite that is largely unaccountable and lacks any legitimacy.

One of the Report’s main findings is:

… that the Eurogroup has evaded, and continues to evade, the accountability that its European-wide impact deserves …

The Europhile progressives will respond saying that this is on their ‘reform’ agenda, that slippery list, which motivates an almost new reform proposal every week, meetings, conferences, announcements, and grand visions of a pan-European democracy where all voices are heard and the well-being of the people is front-and-centre.

The progress towards those reforms though is almost non-existent – and, if anything, the EU decision-making processes become more opaque and the democratic deficit increases over time.

I have been arguing for a long time (since the early 1990s) that the evolution of European integration in this neoliberal period has made the structures incapable of meaningful reform.

It is like a house where the termites have become entrenched. Eventually, the only way forward is to pull the whole construction down and start again.

The Transparency International EU Report provides nothing to disabuse me of that view.

The Eurogroup make decisions that “impact on the lives of millions of Europeans” and one would expect there to be a high level of accountability about how these decisions are made.

Greek prosperity, for example, has been destroyed by the way the Eurogroup (in tandem with the IMF and the ECB) have acted.

The Eurogroup Finance Ministers meet the day before the EU’s Ecofin Council (which is the body of all 28 EU Member State Finance Ministers).

But this body is not established under the EU Treaties and it has a ghost like infrastructure supporting it.

Despite this air of mystery, the Transparency International EU Report quotes the ESM boss as saying:

The Eurogroup already works as a government of sorts.

The problem is obvious.

Governments are meant to be elected, subject to democratic oversight (checks and balances), and be capable of being dissolved if there is public dissatisfaction.

However, the EU makes significant decisions, which are “adopted by the Council without further debate … without the authority to take decisions”.

Go figure!

It is a case of the elites taking control without any legal basis and not be held to account for that takeover.

We read that the Eurogroup makes a decision about something and then reconvenes under a different nameplate (for example, the Board of Governors of the ESM) and ratifies their own decision.

The wonderful world of the European Union, which the Europhile Left think is the exemplar of internationalisation of the progressive movement.

Since the crisis, the increasing empowerment of the Eurogroup has:

… not gone hand in hand with a proportionate increase of democratic accountability, with the effect of widening the EU’s overall “democratic deficit”.

The current Italian crisis is being created by the intransigence of the Eurogroup – insisting that a nation in recession and which still hasn’t regained the lost output levels pre-GFC move towards fiscal surpluses.

Overall, the Transparency International EU Report concludes that:

1. “the Eurogroup continues to evade proper accountability” – it violates basic principles of democratic structures such as “democratic control and accountability should occur at the level at which the decisions are taken”.

2. “Knowledge is power, and only Germany and France muster the resources to assess all national policies as well as read through all of the Commission’s opinions and recommendations for all countries.” – this means that the Eurogroup members “take decisions on (the rejection of) each other’s national budgets without having the resources to adequately analyse them”.

The Transparency International EU Report makes a number of recommendations, none of which will do much to change the intrinsic neoliberalism of economic policy making in the EU nor restore democratic accountability.

The problems are obvious.

1. The EU is not a democratic government but makes decisions equivalent to such a government.

2. The European Parliament is a sideshow in most cases.

The evolution of Ecofin and the Eurogroup

It is interesting to consider the way the Finance Ministers’ bodies have evolved as the EU has entrenched its neoliberalism.

In the early days, Ecofin (the Finance Minister’s body) were not unified.

For example, in August 1971, the French were deeply opposed to German attempt to jointly float the European currencies against the US dollar as the Bretton Woods system was breaking down.

When President Nixon refused the demands by countries to convert dollars into gold (principally from the UK) on August 15, 1971, the dollar became a non-convertible fiat currency.

The French refused to float and were steadfast in their desire to maintain the peg, and use capital controls to reduce the currency fluctuations.

The French saw danger in anything resembling a float because it would threaten the subsidies they enjoyed from Germany under the Common Agricultural Policy.

Up to May 1971, the Bundesbank was purchasing massive quantities of US dollars to quell the appreciation in the mark against the dollar as the last throes of the Bretton Woods system were becoming obvious in the markets.

But on May 5, 1971, the Bundesbank gave up and suspended further foreign exchange market intervention (that is, they stopped selling the mark and buying US dollars) and closed the foreign exchange market.

It was at odds with the German government though that wanted to put pressure on the US dollar through a float.

In the 1980s, Ecofin was pressured by the French to usurp the Bundesbank’s deflationary policy bias.

Édouard Balladur, appointed by Jacques Chirac as the Minister of Economy, Finance, and Privatisation, tried to pressure the Germans to take more responsibility in European Monetary System interventions – in other words, force the Bundesbank to sell marks to keep it from appreciating relative to the weaker European currencies such as the franc.

The Germans were clear that the force of adjustment to the on-going currency instability had to lie with the nations with weaker currencies.

Balladur petitioned Ecofin on January 8, 1988 (his famous Mémorandum sur la construction monétaire européenne) – to force the German hand.

He realised that without capital controls, the French economy would be more sensitive to the Bundesbank’s deflationary stance and that France would have to continue to use higher interest rates to maintain the franc parity. French politics, let alone national pride, would not tolerate that reality.

Ecofin was firmly against the German (Bundesbank) intransigence on currency stability.

Indeed, around this time, Jacques Delors, the so-called French socialist, was charged with forming a committee to come up with the plan for a common currency.

The Delors Committee deliberately excluded the Economics and Finance ministers at the suggestion of Delors himself.

He only want the governors of the central banks and some economists to be included.

Why?

In the – Collection of Papers – that accompanied the Delors Report, Delors himself noted that (p.63):

The creeping paralysis of the Community was the result of the Member States calling into question the Community method for the progressive and limited transfer of national powers to common institutions possessing a real power make decisions.

Delors knew that the Bundesbank would not budge at all on the independence of a new European central bank and that it would have been difficult to get agreement if the Ecofin Ministers were involved.

Many of the Ecofin ministers were opposed to the common currency.

Delors thus constituted his Committee to minimise any (legitimate) discussions of Member State sovereignty and to push through a homogenised Monetarist vision for the new united Europe. By excluding the diversity of opinion, Europe was setting itself up for monumental failure, which manifested in 2008.

In simple terms, the exclusion of the Ecofin Ministers meant that the Monetarist-orientated central bankers (working with conservative mainstream economists) would come up with a consensus fairly quickly.

All members of the Committee were firmly wedded to the new era of neoliberalism and the abandonment of Keynesian macroeconomic policies in favour of the hard-line pursuit of price stability.

And, one the dirty deal was done, the Maastricht process outlined in the – Delors Report (1989) – would embed the capacity of Ecofin to “have the authority … to impose constraints on national budgets to the extent to which this was necessary to prevent imbalances that might threaten monetary stability” (p.36).

In other words, fiscal policy would lose any correspondence with its underlying capacity and purpose, which, up until then, had been seen as providing a strong counter-stabilising policy tool to maintain low unemployment and strong economic growth.

The Delors Committee was proposing a Europe that would be united in the sense that it had adopted the Bundesbank culture, but which would soon be demonstrating very disparate outcomes in terms of economic growth and unemployment.

It is interesting how the excluded Ecofin members came to accept the Maastricht Treaty.

I documented that in great detail in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale.

Basically there was a whitewash, helped, in part, by the French fear of German power after reunification and the growing dominance of Monetarist thinking in the academy that was penetrating all levels of government policy making and homogenising previously seen differences among departments within government (for example, French planning and finance ministries) and across nations (for example, France v Germany).

The model of economic policy that emerged on the road to Maastricht was clearly ‘Modell Deutschland’ with the Bundesbank culture to be defined in the proposed legal framework of the new monetary union.

All the language of modern Europe was there:

1. “the potential threat of budget deficits and their financing”.

2. “no monetary financing of public deficits”.

3. “no bailing-out”.

4. “excessive deficits must be avoided” – although what was considered excessive as laughable.

Ecofin was not permitted to act as a European fiscal authority because the Germans considered this would compromise the focus of the new European central bank on inflation control.

Rather, fiscal policy was left as the responsibility of the Member States, with Ecofin designed to maintain and oversee tight ‘binding’ limits on what the national governments could do.

Ecofin was being reconstructed as a neoliberal police force rather than a body that would represent the interests of the citizens.

Its dialogue shifted to discussing nature of the fines that would be imposed on nations with excessive deficits.

And once the crisis hit in 2009, the neoliberal dimensions of Ecofin were on display for all to see.

To some extent the Transparency International EU Report constructs the evolution of the EU governance structures as a combination of the “French vision of a gouvernement économique for the euro zone” (leaving fiscal policy in the hands of the Member States) and the “German vision of a non-discretionary and rules-based economic governance architecture centred on the idea of sound public finances” (p.10).

The decision to leave fiscal policy in the hands of the Member States was, in part, a sop to the French. But it was crafty choice (under the guise of ‘subsidiarity’) to avoid having to set up a European fiscal capacity.

Delors and his ‘monetarist’ Committee knew that they could stifle any independent fiscal initiatives by the Member States through the rules and surveillance structures that they would introduce.

So it was better to avoid having to take responsibility for fiscal policy by creating a European-level body, given, as Monetarists, they eschewed the use of discretionary fiscal policy anyway.

The form that the Treaty took was not really a compromise between antagonistic French and German demands.

Rather, it reflected internal shifts within the spheres of influence within the French government towards the monetarists in the Finance Ministry, who were much more alike the Germans in outlook about monetary matters than the French Planning ministry economists.

No doubt that the French thought that they could dominate the governance mechanisms of the new monetary system. But they had the same neoliberal ambitions as the Germans by then.

But it is true that the informality of the Ecofin and Eurogroup was the result of a fear by the Germans that any formalisation of a fiscal authority would counter the dominance of the ECB, which the Germans wanted to become a new Bundesbank in outlook and behaviour.

The Eurogroup formed out of that sort of tension.

They didn’t want to be accountable (via formal processes etc) and wanted the membership to be limited (small) to avoid conflict. The Ecofin body has more than 100 people in attendance.

The Eurogroup has the 19 Eurozone Finance Ministers plus one bureaucrat each in attendance.

And so the Eurogroup set out to do just what it wanted with little scrutiny or checks on its authority.

The upshot is that “the Eurogroup has emerged as the new powerhouse in European economic governance since the euro crisis”.

Transparency International EU Report details all the interventions that have come from the powerful Eurogroup and I won’t analyse them here. I have done that often in previous blog posts.

Think six pack.

Think austerity and stagnation bias.

Think millions of people unnecessarily rendered unemployed.

Think billions in public wealth privatised to the benefit of the rich.

Think massive cuts in public services.

Think wage and pension cuts.

Think regressive labour legislation designed to reduce employment protections etc.

And all the rest of it.

The democratic deficit is intrinsic and EU dissolution is required

The Transparency International EU Report’s recognises that the “Eurogroup’s lack of political accountability is difficult to fix” because the “democratic deficit” is intrinsic to the architecture of the common currency.

The system was designed to generate a democratic deficit because that would make it easier to maintain the neoliberal mindset in the face of the devastating consequences for ordinary European citizens.

In other words, recommending that the Eurogroup publish minutes, and other things like that will not “fix the problem”.

The problem is intrinsic.

The problem is THE euro!

Thus the “incrementalism” reforms proposed by the Transparency International EU Report are really window dressing and the authors recognise that these reforms do not:

… address the underlying fault lines in the institutional architecture of the euro area that ultimately limit the capacity of the Eurogroup to govern democratically.

It also sees the solution to the “democratic deficit” in the guise of “Transformation”, which would fundamentally alter the architecture of the Eurozone by creating a federal fiscal capacity and aligning those responsibilities with fully elected positions at the European level (“a new parliamentary assembly for the euro area”).

I considered that solution in detail in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale.

While it would allow the common currency to function with the in-built austerity bias, the chances of it emerging are nil.

Germany will never cede its authority on these matters to a federal body.

Which is why the Europhile reformers come up with all these ‘dancing around the shadows’ type reforms – for example, a European unemployment insurance scheme and other similar changes.

None of which will redress the democratic deficit or alter the stagnation bias.

Conclusion

The Transparency International EU Report concludes by noting that for the “‘rule takers’ – the citizens of the 19 EMU countries” to accept the legitimacy of a European fiscal capacity” they must also have:

… a belief in collective identity – Max Weber’s Gemeinsamkeitsglaube – and trust in the benevolence of fellow European citizens.

And, there is the rub.

There is no collective identity. National divisions, cultures, languages, historical enmities and all the rest of the differences persist and dominate.

At best, the EU should be disbanded and reconstructed as a body for intergovernmental agreements on matters deemed to be too large in scale to be solved by each Member State individually.

Fiscal policy and full employment policy is certainly not at that scale.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.