The Construction and Reform of the European Economic Governance Model
As the process of construction and reform of the European economic governance model is still underway, monetary policy, the exclusive competence of the European Union (EU), is, unlike economic policy, subject to a process of coordination through the Title VIII of the Treaty on the Functioning of the European Union (TFEU).
A Blog Article by Dimitrios Koumparoulis.
As the EU states yield more aspects of sovereignty in the area of economic policy, paradoxically this trend runs in parallel with the progressive awareness of the need for greater economic union in order to face and overcome the economic crisis. The recent nature of the reforms related to economic governance and the openness of this process make it difficult to analyze the functions, roles and institutional balances.
The post-2008 economic crisis has highlighted the structural weakness of the economic and monetary union (EMU), designed in Maastricht and reformed with the Stability and growth pact. It is founded on one separation of monetary policy from the exclusive competence of the union, and economic and budgetary policy, which continues to be reserved for the sovereignty of the EU member states. In particular, the crisis has shown inadequacy of existing tools to promote an ex ante coordination of economic and budgetary policies of member states, and ex post checks on the results of these policies by the European institutions, while facilitating the approval of reforms that have strengthened the powers to direct and coordinate the European Union.
Given the role of European institutions in this framework of economic governance, their roles in the management of the economic crisis have been assigned mainly to the European Central Bank (ECB) and the European Council. With regard to the role of the ECB, the reinforcement that this institution had experienced when included in the Treaty of Lisbon, has been attributed to it by European monetary policy. The ECB has opted for an active role in defense of the Euro, while taking measures within the limits of the legal system, validated by the Judgment of the Court of Justice of the EU on the Outright Monetary Transactions (OMT) program (Draghi, 2018).
It is considered that the European Council has also played a fundamental role, dictating the direction and adoption of decisions (also legislative) and reducing the possibilities of participation of the European Parliament. This leading role implies a tendency to reinforce intergovernmentalism in the European institutional framework. In relation to the Council of the EU, the importance of Ecofin and the Eurogroup in the management of the crisis must be highlighted. Regarding the European Commission, one can highlight its role in crisis management. It has also been argued that the Commission has not hesitated to raise its community voice in the face of anti-European attitudes or excessive market pressure.
The limited role of the European Parliament in the management of the economic crisis reflects the lacking presence of community interest in decision-making. The economic and financial crisis has not only shown the weakness of economic and monetary union but also inadequacy of the European banking services market, threatened in its operation from a growing risk of financial fragmentation, insolvency, and by the existence of large disparities between member states. The inability of systems of national banks to face the crisis, the connection between financial crisis and sovereign debt, the supranational dimension of some problems of the credit institutions, have therefore highlighted the need to harmonize the regulation, supervisory mechanisms, and resolution processes for the rescue of banking institutions, throughout the European Union, and, in particular, in the Euro area (Bertoncini and Vitorino, 2014).
The creation of a more integrated system in this sector therefore represents another important step in the strategy of redefinition of governance carried out by the European Union following the global financial crisis, in which extensive structural reform interventions have led to the creation of a banking union in recent years (Bertoncini and Vitorino, 2014). The regulatory reforms approved by the European institutions – since 2012 – are part of a broader reform process initiated on the basis of a roadmap presented on December 5, 2012, by the President of the European Council, in collaboration with the Presidents of the Commission, the Eurogroup and the European Central Bank, and aimed at achieving a union of economic and monetary policy. The implementation of these reforms has given rise to a rapid establishment of the banking union and banking supervision frameworks. The banking union is based on the integrated action of different institutions, first and foremost the ECB, and based essentially on three pillars: the Single Supervisory Mechanism (SSM); the single resolution mechanism (SRM) integrated into the Single Resolution Fund; and the system of common guarantees for bank deposits (Bertoncini and Vitorino, 2014).
Since the European Council meeting in Lisbon in 2000, annual meetings on economic governance are held. Also, numerous summits have been convened to face political challenges of relevance to specific crisis situations. This economic governance has generated a significant package of “soft laws” or non-binding coordination instruments, which require constant efforts to reach consensus on the part of the parties involved.
Written by Dimitrios Koumparoulis
Edited by Pablo Markin
Bertoncini, Y. and Vitorino, A. (2014). Reforming Europe’s Governance: For a more legitimate and effective federation of nation states. Paris: Notre Europe, Jacques Delors Institute.
Draghi, M. (2018). Europe and the euro 20 years on. Retrieved from https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp181215.en.html.
Featured Image Credits: Paul Hofheinz, Ann Mettler, Helle Thorning-Schmidt and Paul Demaret, Lisbon, Portugal, June 27, 2012 | © Courtesy of Lisbon Council/Flickr.