European Union institutions and policies

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University of Canterbury courses ECON339: Lecture 2

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European Union institutions and policies

  1. 1. ECON339 EURO339Lecture 2: European Union institutions and policies January 2012
  2. 2. ECON339 / EURO339Summary of Lecture 1  Economic means to a political end  Non-linear process:  Common market - 1960s  Eurosclerosis – 1970s  Single European Market – 1980s  Reunification of Europe – 1990s  EMU – 2000s  Economic crisis – 2010s  Force for inclusion  Supranationality vs intergovernmentalism 2
  3. 3. ECON339 / EURO339Overview of Lecture 2  The basics of creating an economic union  An overview of the EU: population, income and economic weight  The “Big Five” EU Institutions  Legislative process and decision-making  The EU budget 3
  4. 4. ECON339 / EURO339The basics of creating an economicand monetary union  “If markets are so integrated, you can’t cook a different soup in one corner of the pot” (Andres Sutt, DG, Bank of Estonia)  Treaty of Rome, 1957 – now retitled “Treaty on the Functioning of the EU”  Article 1: establish European Economic Community  Article 2: establish a common market and approximate economic policies  Article 3: free movement of goods, services, labour and capital and common policies 4
  5. 5. ECON339 / EURO339Main elements (1)  Free trade in goods  Eliminate tariffs, quotas and all other barriers that act like tariffs or quotas  Common trade policy with the rest of the world  Formation of a Customs Union necessary to avoid controls inside EU (Rules of Origin) - forces supranationality  Ensuring undistorted competition (to avoid other policies offsetting trade barrier removal):  State aids regulated by Commission (most prohibited)  Anti-competitive behaviour regulated by Commission  Approximation of laws (ie, harmonisation) necessary to ensure free movement of goods 5
  6. 6. ECON339 / EURO339Main elements (2)  Unrestricted trade in services  Non-tariff barriers, technical standards  Labour and capital market integration  Free movement of workers (not people)  Free movement of capital  Exchange rate and macroeconomic coordination  Managed exchange rates  The euro and the growth and stability pact 6
  7. 7. ECON339 / EURO339The bumpy road to economicintegration 90 BN index 80 70 Integration index 60 DFFM index 50 EMS, 40 1979 30 20 CAP, 1962 Monetary integration 10 failures 0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Customs Union Single Market EMU phased in Programme 1958-68 phased in, phased in, 7 1993-2001 1986-1992
  8. 8. ECON339 / EURO339The EU in 2013 8
  9. 9. ECON339 / EURO339EU populations 9
  10. 10. ECON339 / EURO339Population  6 „big‟ nations:  > 35m (Germany, the UK, France, Italy, Spain and Poland)  2 in-betweens:  Romania (21.5m), Netherlands (16m)  8 „medium‟ nations (size of a mega city):  8-11m (Austria, Belgium, Bulgaria, Czech Republic, Greece, Hungary, Portugal, Sweden)  5 „small‟ nations (size of a big city)  1-5m (Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, Slovak Republic, Slovenia)  3 „tiny‟ nations  <1m (Cyprus, Malta, Luxembourg)  Small and tiny nations less than 5 % of EU27 population 10
  11. 11. ECON339 / EURO339Income per capita (PPP) 11
  12. 12. ECON339 / EURO339Income per capita 11 high income (above EU25 average) over €22,500  Ireland, Netherlands, Austria, Sweden, Denmark, Belgium, Finland, UK, Germany, France, and Italy 6 medium income category – from €19,000 to €22,500  Greece, Cyprus, Slovenia, Czech Republic, Malta 9 low income nations, less than €19,000  Portugal, Estonia, Slovakia, Hungary, Lithuania, Latvia, Poland, Romania, Bulgaria Luxembourg is in the super-high income category by itself  per capita income more than twice that of the Dutch 12
  13. 13. ECON339 / EURO339Size of economies (1) 13
  14. 14. ECON339 / EURO339Size of economies (2) "Other" Ireland 1.5% Luxembourg 0.3% Finland 1.5% Slovenia 0.3% Portugal 1.3% Bulgaria 0.3% Czech Republic 1.2% Lithuania 0.3% Romania 1.0% Latvia 0.2% Hungary 0.9% Estonia 0.1% Slovakia 0.5% Cyprus 0.1% Malta 0.04% 14
  15. 15. ECON339 / EURO339Size of economies (3)  Economic size distribution is VERY uneven  Six nations (Germany, the UK, France, Italy, Spain and the Netherlands) account for more than 80% of EU27‟s economy.  Other nations are small, tiny or miniscule  „Small‟ is an economy that accounts for between 1% and 3% of the EU25‟s output:  Sweden, Belgium, Austria, Denmark, Poland, Finland, Greece, Portugal and Ireland  „Tiny‟ is one that accounts for less than 1% of the total:  Czech Republic, Hungary, Slovak Republic, Luxembourg, Slovenia, Lithuania, and Cyprus  Miniscule is one that accounts for less than 0.1%:  Latvia, Estonia and Malta 15
  16. 16. ECON339 / EURO339The constant tension: supranationality vsintergovernmentalism  Supranationality:  European Commission, Europe Parliament  Intergovernmentalism:  European Council, Council of the European Union  EEC supranational, Luxembourg Compromise in 1966  Single European Act 1986 restored Qualified Majority Voting (QMV) to economic integration  From Nice to Lisbon. QMV extended 16
  17. 17. ECON339 / EURO339Lisbon Treaty  Nice Treaty 2001 – paved the way for institutional reform pending accession of new member states  Constitutional Treaty signed by EU25 on October 29, 2004  Needed to be ratified by member states, some by referendum  Netherlands and France voted no in referendums in 2005  Lisbon Treaty was an attempt to rescue key parts of the Constitutional Treaty  Lisbon Treaty signed December 13, 2007  Came into force January 1, 2009 17
  18. 18. ECON339 / EURO339Governments, parliamentsand judiciary  Government – develops policy, controls the Executive (ministries)  Parliament – votes legislation, holds government to account  Often there is an upper house and a lower house  House of Lords vs House of Commons, Senate vs House of Representatives  Judiciary – implements legislation, independent of government and parliament 18
  19. 19. ECON339 / EURO339 EU Institutions: The „Big Five‟  There are dozens of EU institutions, but only five are really important: Government  European CouncilUpperHouse  Council of the EU  European Commission ParliamentLowerHouse  European Parliament  EU Court Judiciary 19
  20. 20. ECON339 / EURO339European “capitals” Luxembourg Strasbourg Brussels 20
  21. 21. ECON339 / EURO339 European Council (1) Leader (prime minister or president) of each EU member plus:  President of the European Council (new under Lisbon Treaty)  First appointment 1 December 2009 to 31 May 2012  Herman Van Rompuy, 49th Prime Minister of Belgium until he became President  On 1 March 2012, Van Rompuy was appointed for a second term until 30 November 2014 The President of the European Commission also sits on the European Council 21
  22. 22. ECON339 / EURO339European Council (2) By far the most influential EU institution  first meeting in 1961  Formalised in 1974  not mentioned in Treaties until 1986  now permanent institution under Lisbon Treaty Provides broad guidelines for EU policy Thrashes out compromises on sensitive issues:  reforms of the major EU policies  the EU‟s multiyear budget plan  Treaty changes  final terms of enlargements, etc 22
  23. 23. ECON339 / EURO339European Council (3)  Meets at least twice a year (June and December)  Chaired by the President of the European Council  Formerly the chair rotated between heads of government/state every six months  Highest profile meetings used to be at the end of each six- month term, when agenda can be set by presiding member state – eg, Copenhagen 2002, admitting 10 CEECs  No longer the same driver with a permanent president  Determines all of the EU‟s major moves  No formal role in EU law-making - its decisions must be translated into action via Treaty changes or secondary legislation 23
  24. 24. ECON339 / EURO339Council of the European Union (1)  Mostly called by it old name, “Council of Ministers”  Consists representatives at ministerial level from each Member State, empowered to commit his/her Government  typically minister for relevant area – eg, finance ministers on budget issues  Council uses different names according to the issue discussed –EcoFin (for financial and budget issues), the Agriculture Council (for CAP issues)  Member state chairing various meetings rotates six- monthly (Cyprus July-December 2012) 24
  25. 25. ECON339 / EURO339Council of the European Union (2) Exception:  Council of EU Foreign Ministers is chaired by High Representative  High Representative of the Union for Foreign Affairs and Security Policy– often called EU Foreign Minister  High Representative is a member of the European Commissioner (First VP of the European Commission)  Currently Baroness Catherine Ashton (December 1, 2009 – November 30, 2014) 25
  26. 26. ECON339 / EURO339Council of the European Union (3)  The branch of the bicameral EU‟s decision-making body that represents governments of member states  US Senate vs House of Representatives  Main task to adopt new EU laws:  measures necessary to implement the Treaties  also measures concerning the EU budget and international agreements involving the EU  is also supposed to coordinate the general economic policies of the Member States (e.g. famous 3% deficit rule)  chaired by relevant minister from member state with EU presidency 26
  27. 27. ECON339 / EURO339The European Commission European Commission is at the heart of the EU‟s institutional structure – executive arm/civil service Driving force behind deeper and wider European integration Has three main roles:  propose legislation to the Council and Parliament  to administer and implement EU policies  to provide surveillance and enforcement of EU law („guardian of the Treaties‟)  to represent the EU at some international negotiations 27
  28. 28. ECON339 / EURO339EU Commissioners (1)  Before the 2004 enlargement, one Commissioner from each member, two from Big Five = 20  Under Nice Treaty 2003, each member in EU27 has one Commissioner  Lisbon Treaty originally proposed reducing number to 15 from 2014  “26+1 compromise” – one fewer than the number of member states, with “loser” getting High Representative President José Manuel Barroso 28
  29. 29. ECON339 / EURO339EU Commissioners (2)  Commissioners are chosen by their own national governments:  subject to political agreement by other members  Commission and President approved by Parliament  President chosen by European Council  Commissioners are not national representatives:  should not accept or seek instruction from their country  "the only body paid to think European"  Appointed together, serve for five years (2010-14) – the second “Barroso Commission 29
  30. 30. ECON339 / EURO339EU Commissioners (3)  Commissioner = minister of state  Each is in charge of a specific area of EU policy  Directorate-Generals (DGs)  Executive powers  Commission executive in all of the EU‟s activities  power most obvious in competition policy and trade policy  manages EU budget, subject to EU Court of Auditors  decides on basis of a simple majority, if vote taken; mostly consensus basis 30
  31. 31. ECON339 / EURO339European Parliament (1)  The branch of the bicameral EU‟s decision-making body that is directly elected by the population  Two main tasks:  shares legislative powers, including budgetary power, with the Council and the Commission  oversees EU institutions, especially Commission  Based in Strasbourg, but also holds meetings in Brussels  nationalistic struggles to keep an EU institution in each country 31
  32. 32. ECON339 / EURO339European Parliament (2)  736 MEPs  Directly elected every five years (2009-14)  Serve the 2nd largest democratic electorate (after India) – 375m eligible voters Martin Schultz President 32
  33. 33. ECON339 / EURO339European Parliament (3) MEPs represent local constituencies, but generally organised along classic European political lines, not national lines as in Council  The European Peoples Party - centre-right, includes members from every EU state  Progressive Alliance of Socialists and Democrats - centre-left  The Alliance of Liberals and Democrats for Europe European Parliamentary elections are, in principle, a way for Europeans to have their voices heard on European issues, but often national referenda on incumbent national governments 33
  34. 34. Number of seats per country (2009 – 2014 parliamentary term) ECON339 / EURO339 European Parliament (4) Number of seats per country (2009 – 2014 parliamentary term) Austria 17 Latvia 8 Belgium 22 Lithuania 12 Bulgaria 17 Luxembourg 6 Cyprus 6 Malta 5 Czech Republic 22 Netherlands 25 Denmark 13 Poland 50 Estonia 6 Portugal 22 Finland 13 Romania 33 France 72 Slovakia 13 Germany 99 Slovenia 7 Greece 22 Spain 50 Hungary 22 Sweden 18 Ireland 12 United Kingdom 72 Italy 72 TOTAL 736 34
  35. 35. ECON339 / EURO339European Parliament (5) European Peoples Party 2009 Results: 7th European Parliament Progressive Alliance of Socialists and Democrats Alliance of Liberals and Democrats for Europe The Greens–European Free Alliance European Conservatives and Reformists European United Left– Nordic Green Left Europe of Freedom and Democracy Non-Inscrits 35
  36. 36. ECON339 / EURO339European Court of Justice (1)  EU laws and decisions open to interpretation that lead to disputes that cannot be settled by negotiation:  Court settles these disputes between Member States, between the EU and Member States, between EU institutions, and between individuals and the EU  Supranational authority:  1963 ruling established the principle that EC law was directly applicable in the courts of the members  1964 ruling established EC law as an independent legal system that takes precedence over national laws in EC matters  1979 Cassis de Dijon on NTBs started SEM 36
  37. 37. ECON339 / EURO339European Court of Justice  Influence:  Court has had a major impact on European integration via case-law  Organisation:  located in Luxembourg  one judge from each member  appointed by common agreement for six years  also eight „advocates-general‟ to help judges  the Court reaches its decisions by majority voting 37
  38. 38. ECON339 / EURO339 Legislative Process European Commission has a near-monopoly on proposing legislation Ordinary legislative procedure (OLP – used to be called co- decision) requires:  proposal to be adopted by the European Parliament (deciding by simple majority) and  Council of the European Union (deciding by qualified majority) if the Parliament and/or the Council disagree, proposal only adopted if both agree through conciliation procedure 38
  39. 39. ECON339 / EURO339Types of EU legislation  Primary legislation ( treaties)  Secondary legislation (collection of decisions made by EU institutions)  Regulation - Applies to all member states, companies, authorities and citizens. Regulations apply immediately they are written.  Directive - Set out the result to be achieved, Member states decide how to comply with directive  Decision - legislative act that applies to a specific member state, company or citizen.  Recommendations and opinions - not legally binding, but can influence behaviour 39
  40. 40. ECON339 / EURO339Council of the European Union –decision-making  Two main decision-making rules:  unanimity - on the most important issues, eg, Treaty changes, enlargement, multi-year budget plan  qualified majority voting (QMV)  QMV is complex and has changed over time  Three sets of QMV rules:  Procedure 1958-2003 (from Treaty of Rome)  Procedure 2004-14 (from Nice Treaty)  Procedure 2014- (from Lisbon Treaty) 40
  41. 41. ECON339 / EURO339QMW until 2004 enlargement  Each member‟s minister gets fixed number of votes based on population  But fewer than pro-rata  eg, France (60m) had 10 votes; Denmark (5m) had 3  total number of votes in the EU15 was 87  the threshold („qualified majority‟) for a winning majority was 62 votes (71 %) 41
  42. 42. ECON339 / EURO339Pre-2004 QMV - implications  Bigger members have more votes, so 71 % of the votes does not mean 71 % of members  three large members voting „no‟ could block adoption even if the other 12 voted „yes‟  Small nations get far more votes than population- proportionality, so 71 % of the votes does not mean 71% of the EU population  71 % threshold can theoretically be reached, e.g. by a coalition of just eight members representing 58 % of the EU population 42
  43. 43. ECON339 / EURO339QMV 2004-14 Proposition passes the Council when coalition of yes-voters meets three criteria:  votes:  72 % of the Council votes (232 votes of the 321 Council votes in the EU25)  number of members:  50 % of the member states  population:  62 % of the EU population 43
  44. 44. ECON339 / EURO339Post-2004 - votes reallocated tofavour big nations 44
  45. 45. ECON339 / EURO339QMV: Nice Treaty Reforms Malta 50%  Percentage increase in votes by member state Luxembourg 100% Cyprus 100% Estonia 33% Slovenia Latvia 33% 33%  Poland, Spain are Lithuania 133% relative biggest Ireland Finland 133% 133% winners Denmark 133% Slovakia 133%  Tiny members biggest relative losers Austria 150% Sweden 150% Portugal 140% Hungary 140% Belgium 140% CzechRepublic 140% Greece 140% Netherlands 160% Poland 238% Spain 238% Italy 190% France 190% UnitedKingdo 190% Germany 190% 45
  46. 46. ECON339 / EURO339Lisbon Treaty – takes effect October2014  „Double majority‟ system:  to pass: majority of countries (55% or 72% if EC does not initiate) representing 65% of the population or condition to block not met  to block: at least 4 countries against the proposal or  if not all members participate (eg, if some have opt-out) the minimum number of members representing more than 35% of the population of the participating Member States, plus one member are against the proposal  Better reflects population size, but prevents smaller member states being overruled by the larger countries 46
  47. 47. ECON339 / EURO339Council of the European Union –voting in practice  Council normally aims at unanimous decisions  QMV used to encourage compromises for consensus  Final decision rarely uses QMV  For example, in 2008:  128 of 147 Council decisions unanimous  Of other 19, 32 abstentions and only 8 votes against 47
  48. 48. ECON339 / EURO339EU Budget: expenditure  €864.3 billion for the period 2007–2013  Expenditure is in four main areas: o Agriculture (about half) = preservation and management of natural resources (CAP, fishing policy, etc) o Cohesion (about one third) = growth and employment o Other internal policies = competitiveness for growth and employment & citizenship, freedom, security and justice o External policies = the EU as a global partner 48
  49. 49. ECON339 / EURO339EU Budget 2011 49
  50. 50. ECON339 / EURO339Evolution of Spending Priorities 1.0 0.8 % of Budget 0.6 Administration 0.4 External Other Internal 0.2 Cohesion CAP 0.0 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 50
  51. 51. ECON339 / EURO339Evolution of Spending Level 120,000 Total Spending, Million euros, 1958-2006 100,000 80,000 60,000 40,000 20,000 0 62 70 74 82 90 94 02 58 66 78 86 98 06 51 19 19 19 19 19 19 20 19 19 19 19 19 20
  52. 52. ECON339 / EURO339Spending received by member state(€m) 52
  53. 53. ECON339 / EURO339 Funding of EU Budget EU‟s budget must balance every year Financing sources:  Tariff revenue  „Agricultural levies‟ (tariffs on agricultural goods)  „VAT resource‟ (like a 1 % value added tax – reality is complex)  GNP based (tax paid by members based on their GNP) – top up to ensure EU budget balances Only partially related to per capita GDP 53
  54. 54. ECON339 / EURO339Evolution of Funding Sources 100% GNP 80% VAT Miscellaneous Share of total revenue Customs Duties 60% Agricultural Duties 40% 20% 0% 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: “The Community Budget: The facts in figures” European Commission, 2000. Downloadable from http://eurpoa.eu.int/budget/ 54
  55. 55. ECON339 / EURO339Contribution as % GDP 55
  56. 56. ECON339 / EURO339EU budget “problem” On expenditure side:  Receipts depend on economic structure rather than per capita GDP On revenue side:  Contribution depends also on economic structure  Approximately 1 percent regardless of per-capita income  EU contributions are not „progressive‟ - richest nation, (Luxembourg) pays less of its GDP than the poorest nation (Bulgaria) 56
  57. 57. ECON339 / EURO339Net Contribution by Member 57
  58. 58. ECON339 / EURO339Conclusions  EU economies heterogeneous by population, pc GDP, absolute GDP, economic development  so different national interests  EU institutions have executive, parliament/legislature + judiciary  Voting in Council vexed issue  how to weight votes, ensure small country voice heard  Budget reallocates funding to poorer/rural members  So further emphasis on different national interests 58

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