The last weeks in Europe have been heavy on drama, but light on solutions
February 2nd, 2012
By Phillip Souta
The rumblings about the British veto continued this week, with stormy exchanges in the Commons recorded in Hansard here. The merits or not of the veto have been examined in detail elsewhere – a particularly good analysis from David Rennie in the Economist explains how it was not the high watermark of British diplomacy – but two things have been strangely lacking from the debate.
Photo: No 10
First, it is true that the UK finds itself a step further away from the centre of European decision making now than it did before the 9 December summit, but that doesn’t tell the whole story. A man from Mars reading most of the coverage might conclude that Britain is the only member of the EU that has problems with EU treaties or initiatives. That is not true.
Secondly, the storm over the “British veto” has distracted from the fact that the “fiscal compact” agreed on in Brussels on 31 January has little chance of solving the euro crisis. At best, it is a move by Angela Merkel, the German Chancellor, to give herself cover to do more for the eurozone; at worst, it is a symptom of German political deafness to the need for more than just that.
On the first point, why has none of the reporting touched on the fact that in the last ten years, three EU members have wielded three EU vetoes that in turn sowed much greater chaos than David Cameron did on 9 December?
In May 2005, France had to veto the EU’s then-proposed constitution because it was rejected in a referendum. The next month, the Dutch did likewise. In June 2008 the Irish rejected the successor to the rejected constitution, the Lisbon Treaty, due to concerns about their independence.
These were all vetoes – but we have even more recent examples. In October last year, Finland refused to contribute to the Greek bailout without a separate collateral deal for its contribution. This fouled up the process for weeks, leading to rocketing bond yields across the continent. Slovakia, in the same month, refused to contribute to the European Financial Stability Facility, because Iveta Radicova, the Slovak Prime Minister, couldn’t persuade her Eurosceptic Parliament that Slovaks with lower average salaries than Greeks should contribute to a bailout.
The Czechs refused to sign the fiscal pact on 31 December and François Hollande, who on current form looks to walk into the Elysee Palace as President of France this April, has said he would reject it and renegotiate.
UK policy after the veto has been to accommodate, as far as possible, the desire of the eurozone to use the EU’s institutions to police the new agreement. This is a softening of the line before this week’s summit where the government said it would not allow any such thing to happen. This is a tacit admission that we overplayed our hand in Brussels on 9 December. To say however that Britain is somehow uniquely isolated in the EU is wrong, and muddies the waters.
This leads us to the second point. The frenetic talk about isolation has distracted us from the more important question – was the agreement on 9 December enough to solve the eurozone crisis? The answer, unfortunately, is no.
Germany has insisted on eurozone members locking a beefed up version of the Maastricht stability criteria into their constitutions, which in turn will be policed by the European Court of Justice. The hope is that Germany will be forthcoming on doing more to save the euro now that it has what it wants. That would involve injecting more money into European financial resolution mechanisms, agreeing some degree of debt mutualisation in the form of eurobonds, and allowing the European Central Bank to fully stand behind the euro.
The indications at the moment are of no such willingness. Germany has said it will do whatever it takes to save the euro – but this seems to mean doing everything except what is really required. Cameron has wisely decided not to oppose the use of the EU’s machinery to enforce the stricter disciple Germany wants. Angela Merkel needs to find the courage to explain to her voters that the alternative to true structural reform is a breakup of the euro, and the disastrous consequences that would follow.
Posted in Euro, European Politics, Eurozone, UK Politics, Uncategorized | No Comments »
BNE Vacancy: Team Assistant
January 31st, 2012
About BNE
Business for New Europe was founded in 2006 and is a pro-European, business oriented think-tank and advocacy organisation. We are backed by our advisory council, which is a coalition of leading UK business figures. We are committed to highlighting the benefits of EU membership, particularly amongst the business community. We are active in the media, commission research, lobby government and the EU institutions and hold numerous high level events.
About the Role
As we grow in size, we are looking for a highly organised, motivated, and flexible person to join our team.
This is a primarily administrative support role. Administration will involve day-to-day admin and office-management, such as dealing with telephone enquiries, diary management and document and contacts management. The successful candidate would also be expected to assist with research.
The role will suit someone with strong graduate qualifications in European policy studies, international politics and/or economics. The successful candidate will possess very good written and verbal communication skills, as well as the ability to take the initiative, multitask and work independently and as part of a team. You would be expected to get involved in a wide range of projects, and assume overall office administration for BNE.
Responsibilities will include, but may not be limited to:
- General support and office management: diaries, booking meetings, arranging travel and assisting with event management.
- Dealing with telephone and e-mail enquiries.
- Supporting the maintenance of BNE’s website an internet presence (twitter, facebook, flickr, etc.)
- Sending out letters, correspondence and press releases.
- Managing the BNE contacts database.
- Assisting with research, writing policy papers, position papers, analysis and blogging.
- Assisting in any other activities as required.
The successful candidate should be positive, willing to go the extra mile and have a hands-on approach. An interest in European Union politics and sympathy with BNE’s principles and aims would be beneficial. Please note that only successful candidates will be contacted.
Salary is c. £19,000 per annum, pro-rata, for a 6 month fixed term contract to start in March (extendable), to be reviewed after a three month probation period. Application by way of CV and one-page cover letter (both in a single MS Word or PDF document) by way of email to BNE Deputy Director, Paul O’Hagan – info@bnegroup.org . In the subject of the email, please use ‘BNE Team Assistant Application’. Applications close on Friday 24 February at 5pm.
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Press Release – It is in UK’s interest for fiscal pact to be part of EU Treaty
January 11th, 2012
The euro+ treaty should be incorporated into the EU treaties as soon as possible.
Following Monday’s meeting of European Liberal leaders in London, BNE fully supports the aim for the new euro+ treaty to eventually be incorporated into the European Union treaties.
Phillip Souta, Director of BNE said, “We still need to see the final shape of the euro+ agreement, but the latest draft contains obligations that would only apply to members of the euro. As it is in our interest for the eurozone to resolve its problems as soon as possible, and given that the fiscal pact in the treaty is a step towards that aim, we should aim to have it incorporated into the EU treaties as soon as possible, so that the Commission and Court of Justice, which are there for all the EU’s members, can fully police its provisions.”
He went on to say that “The fiscal pact, whilst a necessary step, is not sufficient to resolve the eurozone crisis. We are still going to have to see the European Central Bank getting more fully involved as lender of last resort and some sort of mutualisation of debt, as Olli Rehn, the EU’s economic affairs Commissioner, has set out today.”
Notes to Editors
- Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people/
- For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)7944 572 351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437.
Posted in Euro, Eurozone | No Comments »
The outlook for UK European policy at the year’s end: long winter ahead or chance of an early spring?
December 23rd, 2011
By Dr Daniel Furby
The final months of 2011 were intemperate ones for UK European policy. The government’s victory over Conservative Eurosceptic MPs in the House of Commons proved fleeting; October’s motion on whether to hold a referendum on continued EU membership may have been defeated, but the true measure of its impact can be understood best in light of the December European Council.
Some have argued that there was little justification for a negotiating position whereby the UK sought quid pro quos - including the right to exempt Britain from some EU financial regulations – for something which perhaps should never really have been ours to grant: the reopening of the Lisbon Treaty to introduce new rules for fiscal governance within the eurozone. Given that Britain would have experienced little difficulty in exempting itself from these rules, it may have been better (for the UK and eurozone alike) to permit treaty change and thus show solidarity with allies at a time of deepening crisis. The recent snows in northwest Europe are in keeping with the cold winds currently blowing through UK-European relations.
Photo: Telegraph
The principal question for 2012 is whether these inclement conditions will persist. Will the separation between Britain and the EU mainstream become entrenched, or will Downing Street and Whitehall determine upon a strategy to weather the current blizzard and avoid the dangers confronting the UK’s present and future relationship with Europe? The outlook is at best a mixed one.
The wintry conditions are making their mark closest to home. A sibling schism has erupted between Britain and France over the hitherto obscure subject national of credit ratings. The poor parlance began with French President Nicholas Sarkozy’s likening of Cameron to an ‘obstinate kid’ (a reference to the prime minister’s actions at the December summit) and was carried on by the unflattering remarks of the French Finance Minister, Francois Baroin, and central bank governor, Christian Noyer, on the comparative health of the British economy. The transparent effort to deter, or at least defer, a credit rating downgrade for France provoked considerable irritation in Britain, up to and including the Europhile Deputy Prime Minister, Nick Clegg.
As apt as the proverb about stones and glass houses may seem, the French could also point out that the first pebble was directed from the other side of La Manche. George Osborne’s comments on the financial difficulties facing continental governments – ‘You are not interviewing a European finance minister who is currently terrified that he can’t sell the country’s debts’ – which included a specific reference to France, were bound to rankle with Paris and may in part explain Baroin’s decision to wade in to this particular row. Yet the significance of all this for the UK’s wider relationship with Europe is slight. Anglo-French agitation is very old climatic phenomenon, and the present spat will quickly be forgotten – a localised storm, readily contained within the idiomatic English teacup, or perhaps more fittingly at the festive season, a French verre à cognac.
More troubling, perhaps, is the atmosphere in sections of a different French-speaking capital: Brussels. At the European Parliament (EP), in particular, the week following the December European Council gave rise to some striking signals of disaffection with the UK government. Most dramatic was Joseph Daul, the chair of the centre right European People’s Party (EPP), the largest political grouping in the EP, who suggested that MEPs might be inclined to riposte Cameron’s ‘veto’ by questioning the need for the British budgetary rebate. It is unclear whether Daul’s statement is reflective of currents of opinion within his native France more than it is of attitudes within the EPP, but there should be no doubt about the existence of a more general frustration with British awkwardness within the EP.
Guy Verhofstadt, leader of the Alliance of Liberals and Democrats (ALDE), which includes British Liberal Democrats, demonstrated his irritation by refusing to speak English during the plenary session in Strasbourg. As tempers cool, it seems unlikely that this frustration will actually translate into EP decisions directed against Britain, but a greater danger lies in the possibility that British MEPs, such as those within the ALDE, will find that they carry less influence within their respective political groupings and are therefore less able to advance and defend British interests and perspectives. Given that the Parliament now enjoys legislative equality with the Council, the situation within the EP certainly constitutes another frosty feature on Britain’s European horizon.
Yet the most critical factor in forecasting the probability of a long winter for UK-European relations is not what has happened, but what is still to be done. The greatest hazard confronting UK European policy in the first months of 2011 is its exclusion from the new intergovernmental treaty. Plenty remains unclear about the content and coverage of the new treaty, but should it lead to a further formal distinction between Britain and other EU member states, exacerbating the existing division between eurozone ‘ins’ and ‘outs’, the danger is that Britain’s current troubles will get worse. In particular, should the compact pave the way for intensified discussions between eurozone (and other EU) members on economic and financial affairs, and Britain remains absent, London’s ability to shape future EU policies in these areas could be badly compromised.
There is every reason for the UK to try and regain momentum lost with its EU partners after the December Council meeting, up to and including joining the prospective intergovernmental treaty (the UK currently holds observer status in the negotiations). This does not mean that Britain would have to accept the new fiscal rules introduced, but it would minimise the danger that the UK might be excluded from future talks on questions of fundamental significance to British interests: the City of London and the single market. Should the UK embark upon a genuine process of re-engagement with EU partners, there may yet be hope that 2012 will bring an early spring.
There are firm grounds for a more optimistic outlook: the dark clouds currently residing over the UK’s relationship with Paris and the European Parliament begin to dissipate as the geographic focus shifts eastwards. The recent meeting between British Foreign Secretary William Hague and the German Federal Foreign Minister, Guido Westerwelle, in addition to Angela Merkel’s comments about Britain remaining an important partner within the EU, afford ample evidence that Berlin is anxious to avoid a UK drift to the margins. On the possibility that Britain might still participate in the fiscal compact, Westerwelle was clear: ‘with goodwill it is doable’. Whether it is done will depend primarily upon the government’s readiness to soften the stance taken on the EU Treaty.
For the moment it is tricky to be certain where things will lead, the foreign secretary is holding firm to Britain’s request for countervailing concessions. The explanation for why other EU member states should go to such lengths to deter London from isolating itself remains elusive, and despite Business Secretary Vince Cable’s recent equivocation about the consequences for Britain of the December Council, the coalition government should be in doubt where the balance of British advantage lies; participation in the intergovernmental treaty – with or without concessions to the City of London – easily trumps the continuation of the status quo.
That Britain’s constructive participation in the EU is welcomed in many parts of Europe is also clear from statements such as those of Polish Foreign Minister Radoslaw Sikorski during his Berlin speechin November, in which he highlighted the many positive contributions Britain has made to the development of the European Union. A similar sadness at UK Euroscepticism was evident in Swedish Foreign Minister Carl Bildt’s Twitter comment immediately after the December Council:‘Worried that Britain is starting to drift away from Europe in a serious way. To where? In a strong alliance with Hungary…’. From the Netherlands to parts of central Europe (for a fascinating analysis on the latter theme, see the ‘The UK-EU split’ by Thomas Valasek of the Centre for European Reform) a UK retreat to the margins is viewed with concern.
Forecasting the future of UK-European relations is an inherently hazardous activity, and the present political map reveals a mixture of bleak and brighter elements. There is a genuine desire in many parts of the continent to see Britain re-engage with its partners and retake its seat at the negotiating table. The costs to Britain of joining the prospective intergovernmental treaty are negligible or non-existent. It would inevitably entail a partial loss of face domestically, but this should be more than offset by the knowledge that the government would be acting in the country’s long-term interest. If the UK fails to walk against the winds of national Euroscepticism now, it may simply be blown along with them in the future, and the wintry conditions which currently confront UK European policy will only grow harsher.
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EU Summit Outcome – Britain isolated, eurozone under threat
December 9th, 2011
It is a matter of enormous regret that we find ourselves in a minority of one following the EU summit this week.
The biggest question for British strategy is, why did we need this opt out and what were we trying to protect? Common rules for the Single Market have been adopted by Qualified Majority since Margaret Thatcher signed the Single European Act in 1986.
In the past, the UK has rarely been outvoted on issues relating to financial services because we have been able to build alliances. The risk is that we have so alienated countries by vetoing treaty change that those who voted with us in the past will not be inclined to vote with us in the future.
One of the biggest issues is the possibility of a Financial Transactions Tax but that is something that the UK can veto at the EU level in any event, as it requires unanimity. It is therefore totally unclear why we needed such a protocol.
The Eurozone
Ultimately, by preventing the eurozone from using EU institutions to oversee their agreement on limiting debt, the UK has put the eurozone in danger and therefore British jobs and our wider economy at risk. France and Germany wanted the European Commission and the European Court of Justice to oversee the “fiscal pact” they agreed, to provide credible, clear enforcement.
Without that, this deal will be rejected by the markets. The eurozone+ grouping is now forced to create new institutions outside the EU which will have no track record – this process will take months, and in the mean time, the markets will push Spanish, Italian and other peripheral state bond yields to the point that Italy, for example, may have to default.
The threat to the existence of the eurozone therefore cannot be underestimated. The consequences of a eurozone collapse would be catastrophic for the EU, and for Britain. By vetoing this treaty change, we have made it more, not less likely that the crisis continues. To have lost sight of the fact that supporting the eurozone should be the UK’s first priority is likely to be seen in the future as having been a huge strategic error.
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Stringent rules needed to guarantee single currency’s future stability
December 7th, 2011
By Tom Thatcher
Angela Merkel and Nicolas Sarkozy (Photo: Courtesy of BBC)
As Eurozone leaders prepare for the eighth summit this year on the future of the euro, a major fault line on the road to fiscal union has opened up once again between France and Germany, over whether sanctions should be automatic (the German position), or politically enforced (the French one).
Germany is Europe’s economic powerhouse and the largest net contributor to the EU’s bailout fund, the EFSF. Chancellor Angela Merkel has repeatedly made clear her opposition to any sort of fiscal union, but now that it looks like the only possible option for the euro is to survive, has argued that strict rules for economic governance would need to be enshrined into EU law before Germany could engage with the process any further.
This would mean new treaties, with provisions for punishing members failing to fulfil their obligations (for example, through taking on debt they subsequently cannot service) with automatic sanctions.
Unfortunately for Europe, the EU’s second biggest economy – France – finds itself on the other side of the divide, with Nicolas Sarkozy’s government espousing a model of intergovernmentalism allowing for malleable rules when it comes to paying down common debt.
As ever with the Eurozone, the debate is about more than just economics; it is being played out against a backdrop of competing political philosophies grounded in the continent’s history of internal strife and conflict.
German insistence on the independence of governance structures is rooted in its desire to avoid the hyperinflation which plagued the Weimar Republic, and ultimately led to the country’s slide towards catastrophe in the 1930s.
France’s failure to acquiesce with Germany’s exacting standards has less to do with ensuring the single currency’s future stability and much more to do with maintaining Gallic prestige – and exceptionalism – in a German-dominated Europe with Nicolas Sarkozy playing the role of a latter-day Charles de Gaulle.
Aside from such considerations, however, it is worth considering exactly what model will work best for the Eurozone if it is to regain its role as the world’s alternative reserve currency.
It would be naïve to think that any Eurozone member state will rigidly enforce the doctrine of living within one’s means if there are no punitive measures for defaulters. As reckless borrowing during the single currency’s first decade has shown, low interest rates mean cheap money, and cheap money means high borrowing, even if such policies make little economic sense in the long term (as they didn’t for Greece, Spain and Portugal).
Although cheap money is hardly a problem for the continent at present, borrowing could well spiral out of control in the coming years, as economic slowdown really bites and Europe’s ageing demographic really starts to have an impact.
Nor is any member state above such reckless practices – it is an oft-quoted fact that Germany, Europe’s paragon of economic virtue, was the first to break the rules on Europe’s ‘Stability and Growth Pact’ by going beyond the budget ceiling of 3 per cent of GDP.
It is clear that stringent guidelines, rigidly enforced, are therefore essential to make sure that the single currency is never again brought to the brink of collapse.
Of course, accepting the need for such a requirement goes hand in hand with deciding just how enforcement would work. Without proper implementation, a European fiscal rulebook would simply not be fit for purpose.
In this sense at least, Eurozone countries are fortunate. Institutions capable of ensuring compliance already exist at the EU-27 level, namely the Commission and the ECJ. Combined, these two institutions would be able to guarantee the stability of the single currency in years to come but only if they are given the proper powers to do so.
This prospect has been met with a less than enthusiastic response in certain quarters, not least because it would mean nationals from non-Eurozone countries having a say on Europe’s single currency – something of an anathema, when those Euro-outs include several large countries, all of whom have quotas of commissioners and European Parliament members. How can it be fair that Britain, for example, gets to have a say on the Euro when it is not prepared to sign up to it?
Such questioning, while legitimate, is misguided.
Many of the Euro-out states have plans to join the single currency in the near future, including large regional powers such as Poland. To leave them out of the decision making process at this stage would not only be grossly unfair, but may isolate many of them – after all, they agreed to sign up to a particular type of euro when they acceded to the Union in 2004 and it was not one that involved such harsh sanctions.
At the same time, whilst it may be unpalatable, it makes sense to let those without definite plans to join to remain part of the decision-making process, not only because it will encourage them to join in the future but because it is in keeping with the fundamental ideal underpinning the euro – it is Europe’s currency, and the entire continent should help to make it a success.
Both of these changes will require leaps into the unknown for Europe’s political and economic leaders. But as they gaze over the precipice, they may just decide to take the risk.
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Press Release – The eurozone needs automatic sanctions
December 5th, 2011
The UK should support Germany in its push for automatic eurozone sanctions.
At the beginning of the latest make-or-break week for the eurozone, the biggest political fault line is between France and Germany on how to enforce greater fiscal discipline in the eurozone. President Sarkozy wants ‘political control’; Chancellor Merkel wants automatic enforcement by the European Commission and the European Court of Justice.
Phillip Souta, Director of BNE, said, “For the plan to be credible, Mrs. Merkel must have her way on common rules for all the eurozone’s members. France can only protect its ‘triple A’ credit rating – and save the tens of billions of euros that a downgrade would mean for its debt interest payments – by giving up its exceptionalist position.”
He went on to say, “It looks likely that Germany will not stop the European Central Bank from standing behind the euro if Mario Draghi so chooses, and that it will ultimately endorse some form of eurobond, however, the price it rightly demands is automatic sanctions enforced by the Commission and the ECJ.”
Phillip Souta concluded, “We are starting to see the final shape of the euro emerge. Mrs. Merkel wants the currency to be managed within the institutions of the EU27; Mr. Sarkozy within the intergovernmental 17. The UK has sensibly dropped talk of demanding powers back; now the Prime Minister should stand behind the Commission and the German Chancellor as they push for a rules-based solution to the crisis with the institutions of the wider EU27.”
Notes to Editors
- Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people
- For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)7944 572 351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437.
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Event Summary – Reforming UCITS – Engaging with the UK
November 23rd, 2011
Gareth Shaw, Sven Giegold MEP, Francine Laqua and Julie Patterson
Regulation of financial services was once again under the spotlight during Business for New Europe’s recent event on UCITS, held in conjunction with the European Parliament office in the UK. The discussion focused on the future of the EU’s asset management industry and brought together Sven Giegold – the German Green Party MEP responsible for steering UCITS through the European Parliament as Rapporteur – Julie Patterson from the Investment Management Association and Gareth Shaw from consumer group Which?
Francine Lacqua from Bloomberg expertly chaired what turned out to be a lively debate on a very important piece of European legislation. The event was also well attended by representatives fromLondon’s business community.
Sven Giegold opened the discussion by noting that it was only right that he start his wide-ranging consultation on UCITS in London, given the British capital’s status as the ‘most important place’ for UCITS.
He made it clear that he saw the event as an opportunity to actively engage with interested parties and ensure that UCITS worked well for industry bodies, consumer groups and European citizens.
As a policy maker, his personal view was that UCITS should broadly be used to promote long term growth, but just how to achieve this was open to debate. Over the coming months, therefore, Mr Giegold said he would be posing questions on a range of issues including ‘Is there a need to create UCITS subsectors?’ ‘Should there be separation between UCITS and alternative funds? ‘Would insurance-based solutions work or should consumers assume all the risk when they invest?’ By addressing these issues, Mr Giegold asserted that the EU would inevitably be able to make progress on broader points over the role of ESMA, for example, and the significance of diverging taxations regimes.
Julie Patterson from the Investment Management Association followed Sven Giegold, firstly drawing a clear distinction between fiduciary industries and transactional ones. She said one of her primary concerns was that so many UCITS-related issues were ending with litigation, particularly as so many investors are ordinary European citizens. Developing this point, Ms. Patterson discussed the inherent tension with any legislation of UCITS – investors ranged from managed funds, with high levels of capital and the capacity to perform their own due diligence and risk modelling, to individuals risking a large portion of their savings. This reality means that rules designed to protect the consumer would necessarily be a thorny issue for some investors.
In her opinion, a lack of consistency has also been a major problem for the EU up until now – UCITS, she said, remained the only product which had been regulated for 30 years. Thus, any new regulatory frameworks should aim to correct the imbalance.
Gareth Shaw from Which? Bemoaned the ever-increasing complexity of ETFs and argued that many consumers did not understand the full implications of their investments. As a result, full disclosure was rarely enough – consumers needed better information to help them understand the sophisticated nature of their purchases. Although Mr Shaw liked the idea of an ‘insurance scheme,’ there was an implicit risk that taxpayers would be liable should things go wrong; an unacceptable situation and one which should be avoided. On the other hand, regulators had to be careful that they did not endanger UCITS through over-legislating – they remain a powerful brand, especially in Asia.
According to Mr Shaw, distinguishing between types of investments could be the most productive way to help consumers make better decisions about risk, perhaps through some kind of ‘complex’ and ‘non-complex’ labelling. Yet, he also noted that many ‘small’ investors were happy to take on extra risk, and in fact liked investing in complex products.
The event concluded with a Q&A session, during which attendees were given the opportunity to grill panellists on their positions over UCITS. Business for New Europe would like to thank all participants and attendees for their involvement, as well as the European Parliament for hosting and co-organising the event.
Tags: Regulation, Sven Giegold MEP, UCITS
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Press Release – European Commission is right to back eurobonds
November 23rd, 2011
BNE calls on eurozone creditor states to accept eurobonds as part of the solution to the euro crisis.
The Commission today is throwing its weight behind the idea of eurobonds as part of the solution to the sovereign debt crisis in Europe. Germany opposes such measures on the grounds that they would introduce unacceptable moral hazard and remove the market pressure needed for peripheral states to reform. The choice, however, may be between a combination of eurobonds and ECB quantitative easing or a breakup of the eurozone.
Phillip Souta, Director of BNE, said “It may be that the only way Germany and other creditor eurozone members can protect the euro is through radical measures such as eurobonds.”
According to estimates by the German Institute for Economic Research (DIW), this would cost Germany about €15 billion each year. Phillip Souta said, “This cost would be more than worth it to save the euro, the breakup of which would be a disaster for Europe.” He went on to say that, “German growth over the last ten years would not have been possible with the Deutschmark, which would have had much greater value than the euro, and choked off Germany’s export led recovery.”
Opponents of eurobonds argue that they would introduce an element of moral hazard, but euro bonds can be easily designed to mitigate those risks. One proposal – a variation of which will be included in today’s Green Paper from the European Commission – comes from Jacques Delpla of the Conseil d’Analyse Économique in Paris and Jakob von Weizsäcker, a fellow at Bruegel, a research organisation in Brussels. With this proposal, eurobonds would only apply to the first 60% of a member’s debt in a “blue bond” and with individual members being responsible for anything above it in a “red bond”.
Notes to Editors
Business for New Europe is a coalition of pro European British business leaders who articulate a positive case for reform in Europe. We comment on European issues that have an impact on the UK. For a list of our members, please follow this link http://www.bnegroup.org/about/people/
For media enquiries, please contact Paul O’Hagan on paul.ohagan@bnegroup.org or contact +44 (0)7944 572 351. Phillip Souta can be contacted directly on +44 (0)78 8788 6437.
Tags: eurobonds, eurozone
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In Depth: A Series on the EU’s Internal Market. [2] Delivering Value for Money
November 14th, 2011
By Morris Schonberg
The mood of governments across Europe, inflamed by the eurozone debt crisis, is unsurprisingly characterised by austerity. At present, the public purse is experiencing a myriad of pressures, such as fire-fighting the debt crisis, continuing to recapitalise systemic financial institutions and managing existing spending commitments made in better times.
In this climate, it is now more essential than ever that the State is able to maximise efficiency in public purchases and deliver the best value for money. Public markets remain among the largest and most important for many economic operators in Europe. In the EU, the purchases of goods and services by public bodies corresponded to around 19 per cent of EU GDP in 2009, amounting to over €2,100 billion.[1] Given the sheer size of public markets, cost-savings made in public procurement have the potential to make a real impact on the finances of EU governments and stabilise the economic outlook.
The European Commission recognised this when it finalised the Single Market Act earlier this year, including public procurement policy reform among the package of twelve priority measures to rejuvenate the EU’s internal market. The Commission plans to present detailed proposals for public procurement reform before the end of this year.
The current EU public procurement rules are meant to ensure the application of the EU’s internal market ‘freedoms’, the free movement of goods, persons, services and capital and the optimal allocation of resources they bring, in the specific context of public markets. In such markets, given the inherent advantages national incumbents may have in dealing with their own national public authorities and the danger of latent preference to ‘buy national’, additional effort is required to ensure a level playing field. This is where the framework under the public procurement rules comes in. The rules establish specific contract award procedures for public bodies to follow that ensure public purchases are made in a fully transparent and objective manner, without any discrimination on grounds of nationality. The public procurement rules ensure greater competition between commercial operators from different Member States and maximum value for tax-payers’ money.
The current EU public procurement rules, however, have not been wholly successful in opening up the EU’s public markets. Cross-border public procurement remains low – it is estimated that only 13 per cent of public contracts publicised in the EU’s Official Journal are awarded to operators from other Member States.[2] Whilst this figure may not necessarily reflect the competitive pressure that national operators may have been exposed to as a result of competition from operators from other Member States and the consequent price benefits, the figure is still strikingly low.
The European Commission is currently considering significant reform of the EU public procurement regime in two respects. Firstly, ‘modernisation’ and reform of the EU public procurement regime itself and secondly, developing a new external public procurement policy. Unfortunately, costs savings is amongst the Commission’s objectives for reform, other considerations are also animating the Commission’s proposals that may have the opposite effect.
The potential changes being mooted to the public procurement rules themselves are far-reaching. One possible reform concerns the scope of the public procurement regime itself. Currently the procurement regime is only applicable to certain types of public contracts with a value above certain specified financial thresholds for each type of contract. The broad idea is that the additional safeguards during the contract award process imposed by the public procurement regime, and the consequent additional administrative burdens for public authorities should only be applicable in the case of contracts that are of a sufficient value to merit cross-border interest in the first place.
In principle, the extension of the application of the public procurement regime to more public contracts allows for the possibility of greater competition but the administrative burden to public authorities in complying with the public procurement rules must also be taken into account. There is no sense in expanding the public procurement rules to more contracts where the cross-border interest may be too limited to justify these greater administrative burdens.
The scope of the public procurement regime must therefore be carefully considered and any change should be targeted and precise. In this sense, the Commission should be fully open to the possibility of lesser application as well as greater application of the public procurement rules in achieving the best result for the tax payer. The financial thresholds have not been reviewed since 2004 – when the current public procurement rules were introduced – nor has there been any effort to index the thresholds in line with inflation. Raising them may deliver more value for money.
Another aspect of the reforms represents particular cause for concern. In the current framework, public contracts may only be awarded on the basis of (a) the best-priced tender, or (b) the most ‘economically advantageous’ tender. Although the latter approach allows for the introduction of award criteria that relate to a wider range of policies, such as environmental protection, an important requirement is any such non-price criteria must ‘relate to the subject matter of the contract’ itself – for example, the characteristics of the goods/services to be purchased.
This limitation ensures that the actual goods/services that are being purchased themselves remain central and public authorities obtain the best value for money. Loosening the link may undermine this, allow for disguised discrimination against operators from other Member States, and result in the imposition of a whole variety of different societal requirements for each contract that may impede access by SMEs to public contracts. The additional complexity will also bring further administrative burdens for public authorities conducting public procurement. It is important that this change is fully resisted.
Some of the proposals for a new EU external public procurement policy are also of concern. While commercial operators from the great majority of countries are able to participate in public procurement tenders in the EU, commercial operators from EU Member States may find themselves excluded from public procurement in these third countries, due to protectionism.
The Commission wants to redress this imbalance and improve the access of EU commercial operators to third-country markets. One of the options being mooted is that public procurement in the EU will only be accessible to operators from countries with which the EU has concluded binding international agreements on access. Access to EU public procurement will be restricted for operators from countries with which there is no agreement and from which EU operators are excluded. According to the Commission, this may then grant the EU greater leverage in persuading these countries to open up their public procurement to EU operators.
Much will depend on the detail of any proposal, but it is clear that any initiative that may restrict economically-efficient third country operators from EU public procurement, may have a detrimental impact on competition in the EU and result in the tax-payer receiving less value for money.
Finally, while the public procurement rules and many of the reforms are directed at tackling obstacles to free movement and distortions of competition emanating from public activity, the tenderers themselves are one particular area of reform which could receive more attention in an attempt to combat anti-competitive behaviour by private parties,.
Why? Because did-rigging drives up prices for public contract at the expense of the public purse. Public markets in particular have features which arguably facilitate bid-rigging. Demand is inelastic and stable and the transparency during the tendering process which the public procurement rules ensure, stabilises any bid-rigging arrangements by allowing cheating on any illegal bid-rigging arrangements to be detected by the other participants and sanctioned by reprisals.
Further incentives to deter bid-rigging in the public markets may be created. While the European Commission continues to levy ever-increasing fines on those guilty of anti-competitive conduct, a more targeted solution in the public procurement sphere would be to allow a public authority to restrict operators guilty of bid-rigging in public contracts from its future procurement. Currently public authorities are only able to do this in respect of certain limited offences such as corruption and money laundering. However, it is anti-competitive bid-rigging which, in particular, results in higher costs being paid by the tax-payer. Any restrictions may be on a contract-by-contract basis or sector-specific and subject to self-cleansing, such as the implementation of a successful compliance programme.
During the current economic climate, the goal of delivering better value for money must be the paramount. Any reform proposed by the Commission should not stray from this objective.
[1] European Commission Staff Working Paper, Evaluation Report, Impact and Effectiveness of the Public Procurement Rules, SEC (2011) 853 Final, page i.
[2] Ibid., page 134. This includes both contracts awarded in direct cross-border procurement and indirect cross-border procurement where firms bid for contracts through their foreign affiliates or subsidiaries.
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