Monday, August 18, 2003

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Trouble brewing for the EU

An awful lot of international relations scholarship is devoted to the European Union, in part because it doesn't look like any other actor in world politics. Is it simply an international organization run by the powerful member states (Germany, France, the U.K.) or is it a genuinely supranational authority with preferences and resources of its own? The IR community remains split on this issue (click here for the "EU is only an international organization" thesis, and here for the "EU is a supranational authority" argument).

However, even die-hard realists had to acknowledge that, with the Euro and the establishment of the Maastricht criteria of fiscal and monetary constraints designed to keep Euro as a viable currency, something different was taking place in Europe. Parallels to antebellum America have been made repeatedly.

I raise all of this because 2004 could provide a crucial test of the EU's internal cohesion, according to the Financial Times:

The European Commission has warned Germany that it could face the imposition of radical restrictions on its domestic fiscal policymaking as early as the beginning of next year if it looks set to exceed the stability pact's deficit limit in 2004.

"If Germany breaches the stability pact's 3 per cent ceiling next year, we will present Ecofin with a new recommendation. It is our duty", said Pedro Solbes, the European Unions's monetary affairs commissioner in an interview with FT Deutschland....

Gerhard Schröder, German chancellor, hinted - in an interview with the FT last month - that a breach of the stability pact for a third year running in 2004 is not ruled out....

If Germany breaches the pact in 2004, EU rules demand that Brussels impose the stability pact's highest political sanction: Ecofin, the council of EU finance ministers, would have the right to impose fiscally binding sanctions against Germany.

Germany is not the only country to face this problem -- France also appears to be in violation of EU rules on this score.

If the European Commission and EcoFin can actually manage to force Germany and France into austerity programs with the threat of fiscal sanctions, then the supranational argument wins the day. If not -- my strong suspicion -- it doesn't completely vitiate the supranational argument, but it comes damn close.


posted by Dan on 08.18.03 at 12:01 PM


I guess I quibble with the context. The No-Growth and Instabillty Pact was criticized from day one because it might lead to the day when countries struggling with recession were forced to adopt austerity budgets.

My point being, if austerity budgets are a terrible idea for Germany and France given their current economic state, maybe the rules will be suspended, not because the EU is not a suprantional entity, but because the rules are stupid.

However, if the EU does force both France and Germany to commit economic suicide, then I agree with you - the supranationalists win! And how they deal with the wreckage will spawn a whole new set of articles.

posted by: Tom Maguire on 08.18.03 at 12:01 PM [permalink]

I'm with Tom. This kinda strikes me as a "constitution as suicide pact" sort of thing. Forcing Germany and France into austerity programs is so clearly a bad thing that it's hard to believe the EU won't come up with some other solution.

On the other hand, I agree that watching to see how they solve this problem will tell us something about just what kind of an organization the EU is.

posted by: Kevin Drum on 08.18.03 at 12:01 PM [permalink]

Tom and Kevin,

You're correct in pointing out that dissolving the Maastricht criteria is probably the smart move. However, such a decision would be supremely ironic for Germany and France. Those two countries insisted on establishing such stringent macroeconomic criteria in order to exclude Southern European economies like Spain, Italy and Greece from the Euro, because they doubted those countries fiscal prudence.

posted by: Dan Drezner on 08.18.03 at 12:01 PM [permalink]

Now "supremely ironic" is definitely something that I think everyone can agree with....

posted by: Kevin Drum on 08.18.03 at 12:01 PM [permalink]

The Wall Street Journal ran a story about, France’s $3×10^9 bailout of the conglomerate Alstom. It seems that under EU rules, governments are not supposed to bailout private companies. The Alstom bailout is just the latest French violation of this rule.

I am short on the EU. I think the EU constitution is DoA. The Euro is 50/50.

posted by: Robert Schwartz on 08.18.03 at 12:01 PM [permalink]

The French are multi-abusers of the EU rules on subsidies to local companies. See this article on the $490 Million that Groupe Bull owes the French Government:

posted by: Robert Schwartz on 08.18.03 at 12:01 PM [permalink]

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