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22nd IPSA World Congress in Madrid, July 2012

Panel: “Assessing the Eurozone Crisis”

Governance of the Eurozone Crisis: The influence of national Parliaments

Christine Landfried, University of Hamburg

June 15th, 2012

Governance of the Eurozone Crisis has resulted so far in an increasing impact of

executive power and a decreasing impact of legislative power. In this paper I will first

describe this process with regard to national Parliaments and then evaluate the

consequences for the effectiveness of solving the Eurozone Crisis. The insufficient

problem-solving capacity of governance of the Eurozone Crisis being the dependent

variable will be explained by the way in which actors dealt with difference. It is my

hypothesis that in establishing the Eurozone political elites did not take seriously

difference of economic capacities and in managing the crisis they dealt with

difference of ideas, interests and institutions in an undemocratic, irrational and

anxiety-driven way. The decreasing influence of Parliaments is but one even though

an important factor of neglecting institutional difference. The disregard for difference

and the undemocratic way in which difference was dealt with contributed to the

ineffective governance of the Eurozone Crisis. Political action that would take into

account difference in a democratic and communicative way will be discussed in the

conclusion.

1. Theoretical Approach1

The point of departure is the observation that neither Europeanization nor

globalization are leading to a harmonisation of societies and of politics. Globalization

leads to the “multiplication of different normative orders” (Sassen 2008, 11) and to

collisions between these orders (Fischer-Lescano, Teubner 2006, 36). Difference has

1 This paragraph is taken from Christine Landfried (2011). The Concept of Difference. In Kolja Raube, Annika Sattler (eds.). Difference and Democracy. Exploring Potentials in Europe and Beyond. 15–45. Frankfurt/New York: Campus.

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become the predominant structural principle in a global world.2

Complex societal

structures can naturally not be described in terms of a single ordering principle

(Lepsius 1990, 118). But empirical studies have shown the outstanding importance of

difference in a global world (Beck, Grande 2010, Held et al. 2000, Leibfried, Zürn

2006). Even where Member states of the European Union adopt common directives or

193 Member States of the United Nations decide upon a policy new difference

develops in implementing and interpreting joint policy. With respect to law, Martin

Shapiro puts it thus: “The global result in law is more nationally and locally distinct,

not necessarily more globally common law” (1993, 63).

The term difference comes from the Latin “differe ” (to differ) and denotes a

distinction in a neutral sense. Difference covers structural difference of ideas, interests

and institutions, systemic differences between societal systems (Luhmann 2000), and

finally action-oriented differences in dealing with difference. Difference can have

negative or positive consequences for democratic and effective governance (Landfried

2006, 767) and it is contested whether difference is a problem or a solution (Schmidt

2010, 184). This means that politics is called upon to judge difference not prematurely

as problematic but to consider in each case how the positive aspects of difference can

be brought to fruition. Where the negative potential of difference is apparent,

countermeasures have to be taken.3

The cognitive interest of the concept is directed

towards the capacity of democratic politics “to manage difference, and to resolve

tensions in ways that upgrade the collective interest” (Stone Sweet 2011, 227).

Difference and diversity are often used as synonyms (Page 2007). I opt for difference

for two reasons. In the first place, difference is the more basic concept. Secondly,

diversity describes solely the existing structural differentiation within a society and

between societies. Difference, in contrast is a dynamic concept linking structural,

2 This development has consequences for the concept of identity as well. Perhaps we should forego the concept of identity, because it does focus rather on homogenization and not on difference and interaction. Alain Touraine (2000, 140) pleads for a new perspective on the freedom of the subject on the basis of rejection of any sort of homogenization. 3 Robert D. Putnam (2007, 137–174). The empirical study by the political scientist has shown that ethnic difference in American communities leads not only to a loss of trust and solidarity among groups but also within the same ethnic group. The greater the ethnic difference in a community, the less citizens participate in public life and the more strongly they withdraw into their own four walls as into a snail's shell. From his results, Putnam concludes that the key challenge for modern, differentiated societies is to create a new, more capacious sense of 'we'.

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action-oriented, and systemic differences. It is the actions of individual and collective

actors on the various levels of governance that activate the negative or positive

potential of structural and systemic difference (Fuchs 2007, Geertz 1986). This is why

action-oriented difference is in the centre of my typology.

Figure 1: Typology of Difference

Structural difference

Action-oriented difference

Systemic difference

Definition

Difference of ideas, interests, institutions, capacities, and difference in space and time

Difference in how actors deal with distinctions at the national, inter-national, and supra-supranational levels

Difference in the properties of societal systems and between the systems of the global order.

Concrete differences

Cultural, economic, political, spatial, religious, social, linguistic, and temporal ideas, interests, institutions, and capacities

Democratic, communicative, inclusive, consensus- and compromise-oriented, exclusive, conflictual, confrontational, authoritarian

Criteria and goals of art, public sphere, economy, politics, religion, science at the national, international, supranational, and transnational levels.

Example

Difference between the economic capacities of Member States of the Eurozone

Difference between the inclusive and exclusive treatment of difference of economic ideas

Difference between the criteria and goals of the economy and politics in a democracy

The concept focuses on how political actors treat the many forms of difference. The

legitimacy of dealing with difference during the process of decision making

determines the effectiveness of political outcomes. Effectiveness is defined by the

degree to which the positive potential of difference comes to bear in a political

decision and enables difference to be transformed.

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If they are to deal with difference legitimately, political actors have to take difference

seriously and must have an interest in exploiting the positive potential of difference

for what they undertake. Difference can be used for power politics and exploitation as

well as for solving problems and we should avoid the problem-solving bias of

governance theory (Mayntz 2009, 49). If the actors involved are basically interested in

a positive potential of difference for effective decision making, they can tackle

difference democratically and communicatively, transparently and inclusively, but

also exclusively, opaquely, and authoritarianly (cf. figure 2 above). The first

assumption of the concept is that the more strongly actors are interested in the positive

potential of difference and the more democratically4

and communicatively they deal

with difference in decision making, the greater will be the chance of using the positive

potential of difference for effective political decisions.

Actors in turn have to rely on decision-making structures that facilitate the recognition

and organisation of conflicts about the difference concerned. The “divisibility” of

conflicts is thus one possibility for dealing with difference. However, such divisibility

requires suitable will-formation and decision-making structures that allow the

difference of ideas and interests to become manifest and which permit “cultural

mediation” (Leggewie 2009, 124, Forester 2009, 175f.). The second theoretical

assumption therefore concerns decision-making structures: the extent of positive

potential of difference for effective political decisions can be explained in terms of the

suitability of political structures for the perception and organisation of difference.

Finally, what matters in the processes of will formation and decision making is that

the actors involved pay attention to systemic difference. This includes the

characteristics of a social system to which a given policy area belongs (regulatory

area) and the particularity of the given regulatory level. The third theoretical

assumption can be formulated as follows: there is a link between processes of

decision-making in which systemic difference is respected and the extent to which the

positive potential of difference comes to bear in political decisions. All three

4 A democratic treatment of difference is to be understood in the sense of Robert A. Dahl as a decision-making process in which the effective participation of free and equal citizens is ensured on the basis of inclusive representation, appropriate information, and an enlightened understanding of the problem at hand (Dahl, 1998, 38).

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theoretical assumptions apply mutatis mutandis for the implementation of decisions

(cf. figure 2).

Figure 2: Difference and Democracy—The Analytical Model

Independent Variables Dependent Variable

1. Actors who recognize difference and deal with difference in a democratic and communicative way. The degree to which the

2. Structures that are suitable for the positive potential of perception and organization of difference comes to bear difference. in governance.

3. Processes of decision making in which systemic difference is respected.

The assumptions underlying the concept of difference coincide to some extent with

those of cosmopolitanism. As in cosmopolitanism, differences are accepted and are

neither hierarchically ordered nor dissolved in universalism (Beck, Grande 2007). In

cosmopolitan thought and action, differences are legitimated through a set of common

norms (Appiah 2007, 20). These cosmopolitan norms are intended to regulate the

treatment of difference. They are justified in a manner which in turn makes difference

possible in norm justification and norm design. Such norms include general human

rights, constitutional norms, norms arising from global risks, and “historically

grounded moral norms” that develop in confronting key societal experiences (Grande

2011, 192).

The focus of the difference concept is another. Common norms are important in

dealing with difference. But they say little about the real impact of difference in

politics. What matters is how actors deal with difference on the basis of common

norms (Wiener 2008) and in the context of common institutions and procedures (cf.

figure 2 above). Conflicts and confrontations arise and “one needs to develop a micro-

level analysis of the nature of the discord and choreography of the relations and try to

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explore the possibilities of turning confrontation into mutual transformation” (Göle

2011, 173). Confrontations, however, are given too little place in the concept of

cosmopolitanism, even new cosmopolitanism. Yet, it is precisely the conflicts and

confrontations that have to be understood if difference is not only to be accepted but

also to be transformed into a positive potential for governance and community life.

The attention paid to such a transformation of difference is another element of the

concept I am proposing which is not in the centre of cosmopolitanism.

2. Case-Study: The influence of national Parliaments in governance of the

Eurozone Crisis

a) The reasons of the crisis

The introduction of the Euro in 1999 made sense because of the degree of market

integration in the European Union (Eichengreen 1993). Yet, it was clear from the

beginning that a common currency in a Union of Member States with an enormous

structural difference of economic capacities and without a common economic policy

was highly problematic as well. The political elites nevertheless emphasized the

chances of the Euro. Quite similar to what happened with the establishment of the

Single European Market the advantages of the Euro were overestimated and the

disadvantages were underestimated.

For the Cecchini-Report (Cecchini, Europe ’92) with its glorification of the Single

Market it can be shown that even statistics have been topped in order to deceive the

public. In an interview a former member of the Directorate General III of the

Commission admitted that political elites consciously had misled the citizens in

Europe. According to the former member of the Commission the Cecchini report

“made clear that there was substance in what was proposed and gave statistics to

prove it, even if these statistics were ‘topped’, i.e. modulated for political reasons”

(Historical archive of the European University Institute in Florence, interviews done

by Keith Middlemas, IT/KM/97).

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Only qualitative interviews with political elites involved in the process of establishing

the Euro would make it possible to answer the question if once again knowledge

about the pros and cons of a European policy has been modulated for political reasons

or if the “Euro-enthusiasm” of great parts of the elite has been real. Such a probably

exaggerated “Euro-enthusiasm” has to be distinguished from the way in which Greece

acted when it has given false statistics in order to be become a Member of the

Eurozone (Konrad/Zschäpitz 2010, 53). When Greece entered the Eurozone in 2001 it

officially declared that its public debts were just a little above 3 % of the GNP. But in

October 2009 the new Greek government had to admit that the real amount of public

debts had been much higher all the time since 2001. In 2001 for example the real

public debts amounted to 6 % of the GNP (Konrad/Zschäpitz 2010, 53, Figure 5).

Insofar, Greece is a special case.

What became the biggest problem of the Eurozone was the difference of economic

capacities between the Member States. Government debt before the Lehmann Crisis

was a problem in Greece but not in the other Member States of the Eurozone (Schäfer

2012, 4). Yet, the political elite has generalized the special case of Greece for all the

other members and thereby neglected structural difference between the economies. It

can be shown that the ratio of public debts to GDP in the so-called “GIPSI-states”

(Greece, Irland, Portugal, Spain and Italy) as a group went down until the Lehman

crisis forced European States to increase public debt (Krugman 2012, 203, Schäfer

2012, 3ff. cp. Table 1, Scharpf 2012). Greece did have a huge public debt of 98.6 %

of GDP in 2004, while in Ireland in the same year the ratio of public debts to GDP

was only 29.4 % and in Spain public debts reached 46.3 % in 2004. Ireland and Spain

reduced their public debts since 2000 (Eurostat). Paul Krugman calls the assumption

that the crisis has been caused by huge public deficits because of irresponsible

governments “Europe’s Big Self-Deception” (Krugman 2012, 202).

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Table 1: Ratio of public debts to GDP in the group of GIPSI States

Source: Paul Krugman, End This Depression Now! New York: W. W. Norton & Company 2012, German translation: Vergesst die Krise! Warum wir jetzt Geld ausgeben müssen, Frankfurt/New York: Campus 2012, p. 203.

Thus, huge public debts became a problem only after the Lehman breakdown. In the

interpretation of Wolfgang Streeck the “quantum leap in public indebtedness after

2008, which completely undid whatever fiscal consolidation might have been

achieved in the preceding decade, reflected the fact that no democratic state dared to

impose on its society another economic crisis of the dimension of the Great

Depression of the 1930s, as punishment of the excesses of a deregulated financial

sector. Once again, political power was deployed to make future resources available

for securing present social peace, in that states more or less voluntarily took upon

themselves a significant share of the new debt originally created in the private sector,

so as to reassure private-sector creditors” (Streeck 2011, 20). This interpretation of the

Eurocrisis being another stage of an “old conflict between capitalism and democracy”

(ibid.) has the advantage of being a very systematic approach to explaining the crisis.

“…economic power seems today to have become political power, while citizens

appear to be almost entirely stripped of their democratic defences and their capacity to

impress upon the political economy interests and demands that are incommensurable

with those of capital owners” (Streeck, ibid., 29). In my view it is not yet decided if

there is no chance at all of politically regulating financial markets. So far the reform

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process “triggered by the financial crisis lags far behind what politicians, scientists

and the public unanimously held to be imperative in 2009” (Mayntz 2010, Abstract).

However, before assuming unsurmountable contradictions between capitalism and

democracy it has to be researched which consequences follow from the structural

characteristics of markets and democratic politics for interactions between both

systems and for the results of these interactions (Mayntz 2010, 13). After all, in

societies that are economically and technically developed to an extensive degree there

are limits to economic regulation which even a socialist country cannot overcome

(Mayntz 2010a, 186).

In addition to the Lehman breakdown the main reason of the Eurozone Crisis is the

difference of economic capacities resulting in economic imbalances. “When exchange

rates became fixed and interest rates converged, the international competitiveness of

the German economy has steadily increased and the international competitiveness of

the South has steadily decreased. The result was a German export surplus and an

import surplus in the so-called GIIPS states.” (Schäfer 2012, 6). With the introduction

of the Euro, Southern Europe now could lend money to much better conditions than

before and experienced a boom in real estates. “German capital exports financed

government deficits at low interest rates and private investment, for instance a

housing boom in Spain and Italy” (Schäfer 2012, 6, cp. Scharpf 2012, 2). Capital went

from the center of the EU into the periphery and costs of labor (“Lohnstückkosten”,

wage in per cent of productivity) in the South increased during the first ten years of

the Euro by 35% while in Germany they increased by 9 per cent (Krugman 2012, 199,

Schäfer 2012, 7).

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Table 2: Surplus and deficits in European balances of trade

Source: Paul Krugman, ibid., p. 200.

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Table 3: GNP per Capita in PPS in Member States of the Eurozone

(Data from 1st December 2011 in relation to Index EU-27 = 100)

Source: Eurostat, Online-Datenbank BIP pro Kopf in Kaufkraftstandards (KKS).

The huge difference in economic capacities within the Eurozone has not been taken

seriously by political elites. In addition, elites that influenced governance of the crisis

were the lobbyists of the financial industry as the banking association (Mayntz 2012,

22) and actors in governments but not the elected representatives of Parliaments.

b) The increasing impact of executive power in governance of the crisis

International Treaties are always bargained by executives. With the increasing impact

of executive power in governance of the Eurozone Crisis I want to describe something

else. What we observe in the European Union is a process in which competences of

Member States that so far have been parliamentary competences are transferred to the

executive institutions of the European Union without an adequate participation of

Parliaments and without debates in the public spheres. In my opinion one should

distinguish between short-, medium- and long-term governance of the Eurozone

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Crisis. In the long run what is necessary for a stable, competitive and democratic

European Union is a common fiscal and economic policy and the transformation to a

political Union (Krugman 2012, 199). But I doubt that we practically have already a

“common government with a common parliamentary control in the Euro-group”

(Fischer 2012, 2). It is true that governments cooperate to a certain degree in trying to

manage the crisis, but Parliaments do not control these policies.

What in fact has happened is a transfer of parliamentary competences to executive

European institutions pretending that nothing more than management of the crisis has

been agreed upon in regulations and international treaties. The first step in this

process has been the so-called “Six Pack”. With six regulations a much stronger

control with regard to the surveillance of national budgetary positions and to the

coordination of economic policies has been introduced. The regulations have been

decided in accordance with the ordinary legislative procedure (Article 289 and 294

TFEU), the former co-decision procedure. Therefore at least at some points the

participation of Parliaments in economic governance is provided for. Council

decisions under Article 126 (6 and 7) TFEU about an excessive deficit in a Member

State and about recommendations addressed to the Member State are to be discussed

in an “economic dialogue” between the European Parliament, the Council and the

Commission (Regulation EU No. 1177/2011 of 8th November 2011, Article 2a). And

in one of the other regulations it is said that “The strengthening of economic

governance should include a closer and more timely involvement of the European

Parliament and the national parliaments” (Regulation EU No. 1175/2011 of 16th

November 2011, introductory reasoning 11).

But overall, it is the European Commission that is shaping, structuring and

implementing the control of budgetary politics of the Member States. “The

Commission should have a stronger role in the enhanced surveillance procedure as

regards assessments that are specific to each Member State, monitoring, onsite

missions, recommendations and warnings.” (Regulation EU No. 1175/2011 of 16th

November 2011, introductory reasoning 12). The growing power of the Commission

is reflected in the rule that the Commission controls if Member States act in

accordance with the rules that the Council has decided on the coordination of

macrofiscal and macrostructural policies: “Member States shall take due account of

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the guidance addressed to them in the development of their economic, employment

and budgetary policies before (underlined by the author) taking key decisions on their

national budgets for the succeeding years. Progress shall be monitored by the

Commission” (Regulation EU No. 1175/2011 of 16th November 2011, Article 2 (3)).

This means: national Parliaments have to account to a European executive institution

for what they are planning in their budgetary policies.

The next step in the process of a creeping empowerment of the Commission has been

the Fiscal Pact. This international treaty has been signed by 25 Member States of the

European Union on 2nd March 2012. In this Treaty the new structures in European

governance are disguised by a language that only lawyers do understand and by

referring very often to existing treaties and regulations, especially the Six-Pack. The

reader of the Treaty gets the impression that simply existing law is repeated. Yet, in

fact the Fiscal Pact shapes a new and largely executive-driven structure of governance

of the Eurozone.

The power of the Commission is strengthened. According to Article 7 of the Treaty it

is no longer the democratically legitimated Council who decides with a qualified

majority which measures a Member State with an excessive deficit has to take. In

future it will be the Commission that proposes the measures. The Member States of

the Eurozone agree to support the proposals of the Commission unless a qualified

majority of Members of the Eurozone vote against the recommendations of the

Commission. Therefore the Council only comes into play if such a majority against

the policy of the Commission exists. Ingolf Pernice convincingly argues that such a

detail that appears to be of minor importance has far-reaching consequences for the

balance of power in the European Union. The above mentioned possibility for the

European Parliament to initiate an “economic dialogue” between the institutions on

the measures the Council proposes for Member States with an excessive deficit will

not exist any longer. Such a dialogue –which would make a lot of sense - so far was

provided for in cases of Council decisions. However, such Council decisions shall no

longer be the rule and only occur in the case of a qualified majority of Euro-States

against the Commission (Regulation EU No. 1177/2011, Article 2a. Cp. Ingolf

Pernice, written expertise for a public hearing during a party-meeting of the

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Greens/European Alliance in the European Parliament on 8th January 2012, 11).5

The

increase of executive power in the European Union is all the more problematic as it

happens by small steps and as the public is not aware of what happens.

The innovation of the Fiscal Pact is the combination of nationally anchored –

preferably constitutional - provisions of balanced budgets with a European control

mechanism. If a Contracting Party misses to provide for a balanced budgets clause in

national law it is again the Commission that can initiate that the matter will be brought

to the European Court of Justice by one or more Contracting Parties (Fiscal Pact,

Article 8). Thus, we have a shift of power not only to the European executive, but also

a shift to judicial power of the European Union.

To be balanced, the structural deficit of a State must not be more than 0, 5% of the

gross domestic product at market prices (Fiscal Pact, Article 3). To reach this goal it is

the Commission that proposes the time-frame “taking into consideration country-

specific sustainability risks” (Fiscal Pact, Article 3). In case a Contracting Party

violates the rule of balanced budgets „a correction mechanism shall be triggered

automatically” (Fiscal Pact, Article 3). This correction mechanism, its „nature, size

and time-frame”, is shaped by the Commission.6

Therefore the statement in the Treaty

that the mechanism does “fully respect the prerogatives of national Parliaments” is

just window-dressing.

Of course the prerogatives of national Parliaments in defining the budgetary policy is

restricted by the correction mechanism laid down in the Fiscal Pact. It is a

development towards more European competences in budgetary politics that does

5 Article 7 of the Fiscal Pact reads: „…the Contracting Parties whose currency is the euro commit to supporting the proposals or recommendations submitted by the European Commission where it considers that a Member State of the European Union whose currency is the euro is in breach of the deficit criterion in the framework of an excessive deficit procedure. This obligation shall not apply where it is established among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the Treaties on which the European is founded, without taking into account the position of the Contracting Party concerned, is opposed to the decision proposed or recommended.” 6 Fiscal Pact, Article 3(2) reads: „…The Contracting Parties shall put in place at national level the correction mechanism …on the basis of common principles to be proposed by the European Commission, concerning the nature, size and time-frame of the corrective action to be undertaken, also in the case of exceptional circumstances, and the role and independence of the institutions responsible at national level for monitoring compliance with the rules set out in paragraph 1. Such correction mechanism shall fully respect the prerogatives of national Parliaments.”

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make sense and is the consequence of shared sovereignty in the European Union. It is

another question in which direction the common European fiscal policy should

operate and if at the moment a policy of austerity is advisable. But the process

towards a fiscal Union as such is sensible and should not be hidden by the executives.

The sharing of sovereignty and the development towards a fiscal and political Union

should be quite openly discussed. Such a discussion must include the European

Parliament, the national Parliaments and the national as well as the transnational

public spheres. This is why the rule of the Fiscal Pact that the President of the

European Parliament “may be invited be heard” at the Euro Summit Meetings of the

Heads of State or Government of the Contracting Parties does point into the wrong

direction (Fiscal Pact, Article 12). The President of the European Commission will

regularly participate in these Euro Summit Meetings. Why not the President of the

European Parliament as well?

The Fiscal Pact is linked with the European Stability Mechanism (ESM Treaty) which

has been signed by the Member States of the Eurozone on 2nd February 2012. Only

those Members of the Eurozone that have ratified the Fiscal Pact might get financial

help from the ESM. To be in force the Fiscal Pact has to be ratified by 12 Contracting

Parties, while the ESM Treaty shall enter into force when it has been ratified by

“signatories whose initial subscriptions represent no less than 90 % of the total

subscriptions” (ESM Treaty, Article 48). The authorized capital stock of the ESM

shall be 700 000 million Euro and the lending shall not exceed 500 000 million Euro

(ESM Treaty, Articles 8 and 39).

The national governments and the European Commission determine the way in which

the ESM is working and giving financial help. The decisive institution is the Board of

Governors in which the Ministers of Finance of the Contracting Parties are members

(ESM Treaty, Articles 4 and 5). The Member of the European Commission in charge

of economic and monetary affairs and the President of the European Central Bank can

participate as observers in the meetings of the Board of Governors. In case a Member

of the Eurozone applies for financial help, the Commission in cooperation with the

European Central Bank evaluates if the help is really needed and how much money

would be adequate . On the basis of this evaluation the Board of Governors decides

about giving or not giving financial help. Again, it is the Commission and the

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European Central Bank who negotiates with the ESM Member concerned a “Modus

of Understanding” in which the conditions attached to financial assistance are laid

down. And in the implementation process as well, the Commission has the

supervisory function. “The European Commission – in liaison with the ECB and,

wherever possible, together with the IMF – shall be entrusted with monitoring

compliance with the conditionality attached to the financial assistance facility” (ESM

Treaty, Article 13, paragraph 7).

To sum it up: The Fiscal Pact and the ESM Pact strengthen the European and national

executive power in liaison with the financial power of the European Central Bank and

in liaison with the judicial power of the European Court of Justice at the expense of

the legislative power of the European and the national Parliaments. Though this

development endangers democratic legitimacy it is an oversimplification to assume

that institutions like the Commission and the ECJ are only interested in the

“protection of markets and property rights constitutionally enshrined against

discretionary political interference” (Streeck, ibid., 7).

c) The decreasing impact of legislative power in governance of the crisis

It has been described in which way the Fiscal Pact and the ESM lead to an increasing

impact of executive power in governance of the Eurozone Crisis. However, a common

European governance of the crisis and in the long run a common European fiscal and

economic policy need democratic legitimacy. This is why the European Parliament

and the national Parliaments should participate in shaping the future architecture of

the development of a European financial and economic order. So far the only way

national Parliaments can participate is the ratification of treaties. In the following

table the different ways of ratification of the Fiscal Pact and the ESM Treaty in the

States of the Eurozone are summarized.

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Table 4: Procedures of ratification of the Fiscal Pact and the ESM in the Member

States of the Eurozone and assessment of risk for non-ratification

Member State of the Eurozone Procedure of Ratification Risk for non-ratification

Austria

Parliament (simple majority in the National Council), Article 50 of the Constitution. In case of a change of the Constitution a two thirds majority is necessary, Article 44 of the Constitution and a referendum is facultative, Articles 43 and 44 of the Constitution.

No

Belgium

Parliament (simple majority in both Chambers of Parliament and in the regional Parliaments), Article 167 of the Constitution.

No

Cyprus

Parliament (simple majority and consent of the Council of Ministers), Articles 50 and 169 of the Constitution.

No

Estonia Parliament (simple majority), Article 121 of the Constitution.

Fiscal Pact: No ESM: Probably risky

Finland

Parliament (simple majority), Article 94 of the Constitution. In case of a transfer of sovereignty a referendum is facultative, Article 53 of the Constitution.

Probably risky, as the majority in Parliament is not safe No referendum planned

France Parliament (simple majority in both Chambers), Article 53 of the Constitution.

ESM has been ratified on 28th February 2012 Fiscal Pact: Yes, risky after the election of François Hollande.

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Germany

Parliament (simple majority in the Bundestag), Articles 23 and 59 of the Constitution. In case of a change of the European treaties or “comparable” regulations a two thirds majority in both Chambers is necessary, Articles 23 and 79 of the Constitution.

ESM: No, as the simple majority is safe. Fiscal Pact: Yes, as a two thirds majority in the Bundestag and the Bundesrat is necessary and the Opposition will give its consent only under certain conditions. Decision expected at the end of June 2012.

Greece

Parliament (simple majority), Article 36 of the Constitution. In case of important national questions a referendum is facultative, Article 44 of the Constitution.

An originally planned referendum has been cancelled. The situation is unclear and a ratification of both Treaties risky. The results of the elections on 17th of June 2012 have to be waited for.

Ireland

Parliament (simple majority in both Chambers), Articles 29 and 15 of the Constitution. It case of a change of the Constitution a simple majority in Parliament and a referendum are necessary, Article 46 of the Constitution.

No. 63 % in favor of the Fiscal Pact in the referendum on 31st May 2012. Majority in Parliament is expected to be given.

Italy Parliament (simple majority in both Chambers), Article 80 of the Constitution.

No, parliamentary majority is safe.

Luxembourg

Parliament (simple majority), Articles 37 and 62 of the Constitution). In case of an important transfer of sovereignty a referendum is facultative, Article 51 of the Constitution.

No, parliamentary majority is safe and a referendum has not been demanded.

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Malta Parliament (simple majority), Article 71 of the Constitution.

No, parliamentary majority is safe.

Netherlands Parliament (simple majority in both Chambers), Article 91 of the Constitution.

Probably risky, as parliamentary majority is not safe.

Portugal

Parliament (simple majority), Articles 116 and 161 of the Constitution. In case of questions of high national interest a referendum is facultative, Article 115 of the Constitution.

No, parliamentary majority is safe and a referendum has not been demanded.

Slovakia Parliament (simple majority), Article 84 of the Constitution.

No, parliamentary majority is safe.

Slovenia

Parliament (simple majority in Assembly), Article 86 of the Constitution. The Assembly can demand a referendum, Article 90 of the Constitution.

No, parliamentary majority is safe and a referendum has not been demanded.

Spain

Parliament (simple majority in both Chambers), Article 94 of the Constitution. In case of an important transfer of sovereignty a referendum is facultative, Article 92 of the Constitution.

No, parliamentary majority is safe and a referendum has not been demanded.

Source: Anna-Lena Kirch, Daniela Schwarzer, Die Ratifizierung des Fiskalpaktes und des ESM in den Ländern der Eurozone – rechtliche und politische Rahmenbedingungen, Working Paper of the “Stiftung Wissenschaft und Politik”, Berlin März 2012 and supplements by the author.

What impact did national Parliaments have on governance of the Eurozone Crisis in

the processes of ratifying the Fiscal Pact and the ESM Treaty? For France and Greece,

the two countries I wanted to include in my analysis, one has to wait until the

elections have taken place on 17th of June 2012. Only after these elections it will be

20

possible to study what role in the new context Parliaments in these countries will play.

This is why I want to concentrate on Germany.

In Germany it has been the Constitutional Court with a decision of 28th February 2012

that reminded the Parliament that it would not be in accordance with the Constitution

to delegate the competence of budgetary policies to a committee. It has to be the

Parliament in its entirety that decides on the budget. Therefore the predecessor of the

ESM Treaty, the European Financial Stability Facility, would only be constitutional if

the agreement on an emergency financial help for a Member of the Eurozone within

the EFSF has been agreed upon by the Parliament in its entirety. It is the plenary of

the Bundestag that has to decide if the government might agree measures of the EFSF.

The only exception of this rule are purchases of State loans at the secondary market.

In this case a special group of members of the household committee might decide

because in this case we have a confidential matter.

Parliament has amended the EFSF law according to the judicial decision after

readings in the Bundestag in its sessions on 29th March 2012 and 27th April 2012 (The

drafts are: BT-Drucksache 17/9145 of 27th March 2012 and BT-Drucksache 17/9435

of 25th April 2012).7 What is astonishing in the parliamentary debates is the fact that

the transfer of parliamentary rights to the European executive has not been discussed

intensely and even called into question. Frank-Walter Steinmeier, Member of

Parliament and leader of the faction of the SPD: “With the ESM we decide about

questions which transform our Constitution … probably the rights of our Parliament

as well.”8 Of course and not only “probably” the ESM as well as the EFSF transfer

rights of Parliament to the Commission! The debate about the procedure for

parliamentary participation in the EFSF in April lasted for half an hour and has not

been attended by too many Members of Parliament.9

7 Cp. the third reading in the Bundestag on 27th April 2012, Minutes of Parliamentary Debates.

And while Parliament discussed

about its own rights in governance of the crisis Members of Parliament pleaded not to

practice too much of a parliamentary participation: “We must not forget the

fundamental rights of each Member of Parliament. However, it also true that we

should not exaggerate our participation…We must always see the dividing line

8 Minutes of Parliamentary Debates, Session 172, 17th Electoral period, 29th March 2012, p. 20216. 9 Minutes of Parliamentary Debates, Session 176, 17th Electoral period, 27th April 2012, p. 20925.

21

between executive and parliamentary competences.”10 Not only Members of

Parliament belonging to the parties of the governing coalition, but also Members of

Parliament belonging to the opposition emphasized that it will not be easy to find a

balance between participation of Parliament in governance of the crisis and the

effectiveness of mechanisms like the EFSF.11

The draft for the law ratifying the EMS Treaty contains a procedure of parliamentary

participation as well. Certain changes in the measures of financial help or changes of

the sum of the authorized capital stock are only possible after the consent of the

Bundestag. Quite similar there is a detailed procedure on parliamentary participation

included into the draft of the ESM – Financing – Law. We should not think little of

these new procedures for parliamentary participation in governance of the Eurozone

Crisis. But do these procedures really have an impact on governance of the crisis? I

doubt it.

The latest development that the opposition in the Bundestag makes a financial

transaction tax conditional for its consent of the Fiscal Pact has nothing to do with the

necessary participation of Parliament in shaping governance of the Eurozone Crisis

either. Shaping governance would mean to influence the ESM and the Fiscal Pact in

its contents. The financial transaction tax is an additional policy and has more of a

symbolic value as long as only a small number of Member States of the Eurozone will

accept it. Thus, the deal between government and opposition in the ratification

processes of the ESM and the Fiscal Pact in my view does neither correspond to the

seriousness of the crisis nor does it enhance parliamentary power.

d) The consequences of the decreasing impact of legislative power for

governance of the crisis

So far, governments on the national, European and international level have not been

successful in coping with the crisis. As the influence of Parliaments has been reduced,

the way of dealing with difference of ideas and interests has neither been democratic 10 Member of Parliament Norbert Barthle, CDU/CSU, Minutes of Parliamentary Debates, Session 176, 17th Electoral period, 27th April 2012, p. 20926. 11 Member of Parliament Priska Hinz, The Greens, Minutes of Parliamentary Debates, Session 176, 17th Electoral period, 27th April 2012, p. 20931.

22

and communicative nor inclusive (cp. above typology, “action-oriented difference”).

The disregard of difference of ideas and interests and the way in which difference was

managed have been detrimental to governance of the crisis.

Economic ideas how to solve the Eurozone Crisis have focused on neoclassical

theory. Approaches based on experiences of the Depression in the 1930s and

arguments against austerity policies during an economic crisis did not have much

influence. Cutting expenditures, raising taxes as well as interest rates became

fashionable in Europe (Krugman, 2012, 214ff.). According to the “inflation-goal-

strategy” efforts were made to keep inflation down. Whenever inflation was above a

certain margin as for example above 2 %, the Central Bank raised the interest rates

(Stiglitz 2010, 331). The assumption is that a low inflation is a necessary and nearly

sufficient condition for economic growth. It is an assumption that is not only oriented

towards neoclassical theory, but has to do with historical experience as well. It is

difficult to understand why the memory of the inflation in the 1920s has so much

political impact whereas the memory of the depression in the 1930s seems to be of

minor importance. On the one hand we observe an anxiety-driven way in dealing with

inflation. On the other hand, the dangers of instable financial markets are

underestimated.

With the exception of the public bailout of great banks in the immediate period after

the crisis of 2008, the elite consensus dominant in governments and the financial

system focused on neoclassical economic theory and the conviction that politics

should not interfere into markets too much. This elite consensus was enforced by the

fear of an economic breakdown. “…the very fear of an economic collapse prevented

more radical reforms by spurring attempts to prevent a meltdown of the financial

system” (Mayntz 2012, 25). The fear of governments that the economy would

collapse made it easy for the financial system to defend its interests and to prevent an

effective regulation of banks and investment firms. The complexity of the financial

system was an additional reason that the ideas and interests of “financial insiders”

were influential: “One effective defense for the financial industry was to use the

inevitable information asymmetry between financial insiders and financial outsiders to

paint a grim picture of the economic consequences of restrictive regulation: a credit

crunch, loss of jobs in the finance industry, and slower growth” (Mayntz 2012, 22).

23

Governmental and financial actors had no interest in debating economic ideas that

were in contrast to the neoclassical model. Of course one cannot be sure that

participation of Parliaments would have meant a more inclusive debate of economic

ideas and interests. Still, it is no accident that it has been a group of Members of the

European Parliament that admonished for counter-expertise in governance of the

Eurozone Crisis (Mayntz 2010, 10). As long as only governments and lobbyists of the

financial industry decide about management of the crisis opposition parties in

Parliaments do not have a chance to enrich the debate with their ideas and interests.

Decision-making structures that exclude the legislatures are not suitable for the

perception and organization of difference of ideas and interests. And as long as

Parliaments – both on the national and on the European level - cannot participate in

shaping governance of the Eurozone Crisis there is no chance of dealing

democratically with difference of ideas and interests. The thesis that “under some

circumstances the outcomes of a non-parliamentary procedure may be preferable over

the outcome of a parliamentary procedure” (Kumm 2006, 271) is based on the

assumption that there is an advantage of experts, administrative agencies or courts in

making effective decisions over the way in which decisions are reached by

Parliaments. However, governments, administrations or experts are not the better

policy-makers. These actors are reaching their decisions within different structures

and in different ways than Parliaments do. This structural difference of institutions

should be used for effective governance. The democratic decision-making structures

of national Parliaments remain essential for European as well as for global

governance. Parliamentary debates are crucial for initiating a debate on an adequate

management of the crisis in the public spheres.

The combination of a generous bailout of banks, of giving financial help to countries

in economic trouble and of an austerity policy equally strict for all Member States as

it is planned with the Fiscal Pact does not solve the problems of the crisis. This is why

more and more economists advise that the European Central Bank should continue to

purchase government bonds of distressed countries on the secondary market to secure

liquidity in the Eurozone and that countries with a surplus in the balance of trade like

Germany must develop programs for enhancing domestic demand (Eichengreen 2010,

24

Ferguson, Roubini 2012, Krugman 2012, Schäfer 2012). It is time to discuss new

ideas and to include the interests of the citizens represented by democratically elected

Members of Parliaments in governance of the Eurozone Crisis. “The difficulty lies,

not in the new ideas, but in escaping from the old ones, which ramify, for those

brought up as most of us have been, into every corner of our minds” (Keynes 1935,

VIII).

3. Conclusion: What should be done to activate the positive potential of

difference in governance of the Eurozone Crisis?

It is the result of the analysis that difference of economic capacities as well as

difference of ideas, interests and institutions have been neglected to a large degree in

governance of the Eurozone Crisis. In order to bring these differences in again and in

order to have a democratic and inclusive debate of these differences there should be a

new Convention with the aim to develop long-term solutions for the financial and

economic policy in a political European Union. Such a Convention according to

Article 48 of the TEU would be more democratic than the so far primarily executive

governance of the crisis. As the Convention would include Members of national

Parliaments and the European Parliament, the national governments and the European

Commission there would be a forum for a debate on the difference of ideas, interests

and institutions. The debate in the Convention could give a push to debates in the

public spheres as well. The negative experiences with the Convention for the future of

Europe should not hide the capacity of such a Convention for unfolding the positive

potential of difference in governance of the Eurozone Crisis.

25

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