The election of Jean-Claude Juncker as the next president of the European Commission was not the only accomplishment of EU leaders in late June. There were also important developments on other foreign and economic issues.
British Prime Minister David Cameron and Hungarian Prime Minister Victor Orban were the only leaders to oppose Juncker [pdf]. Cameron, who failed to block the 2011 Fiscal Treaty, seems to have used the occasion to make domestic political points. Frustrating as his actions were to European peers, as discussed in an earlier RealTime post, Cameron’s criticism of the selection process had considerable merit.
His concerns were implicitly acknowledged by the EU leaders themselves. By stating that “the European Council will consider the process for the appointment of the President of the European Commission for the future, respecting the European Treaties,” EU leaders signaled their unhappiness about being outmaneuvered by the European Parliament on Juncker’s selection. They will want to change the process to ensure its legitimacy and strengthen their own political influence. Whether national leaders can claw back some of their decision-making power is questionable, however. The power of precedent is strong in European politics, and there is no obvious reason for the European Parliament to compromise. Reforming the Spitzenkandidat process, in which political parties fielded their presidential candidates in the parliamentary election, will most likely have to be done at the European party level, where national political leaders still hold sway. This time around, EU leaders found it convenient to avoid a protracted fight and appoint someone they all knew.
Cameron warned that selecting Juncker would make it harder to keep the United Kingdom in the European Union. Some members of his party have suggested that they may have to campaign against staying in the European Union in a future referendum. In the end, however, Cameron will have little choice but to favor staying in Europe if he wants to maintain the Conservatives as a credible probusiness party. Whatever pressure he faces from the United Kingdom Independence Party (UKIP), the political reality is that the costs to British business of a UK departure from the European Union would be high. While remaining on the political sidelines for as long as possible, most UK business groups will eventually favor staying in the European Union. If he chooses to campaign against the European Union, Cameron risks splitting his base just as the American “conservative” movement has divided over its ties to business.
For all of Cameron’s opposition, he has a lot in common with Juncker. Both have managed economies dependent on the financial services industry. Having opposed financial services and tax transparency regulations in Luxembourg, where he served as prime minister, Juncker is hardly likely to unleash a new regulatory assault on the City of London.
Moreover, Cameron’s Conservatives have retained the chairmanship of the European Parliament’s Internal Market and Consumer Protection Committee, which will be led by second-term European Parliament member Vicky Ford. If Juncker and other EU leaders agree, the Internal Markets portfolio in the next European Commission could also be given to a credible, non-euroskeptic UK commission member. The Conservative Party could then control two important European jobs related to the EU internal market, the core item David Cameron has vowed to promote to help Britain stay in the European Union. There are thus many ways in which Cameron, Juncker, and other EU leaders can work together for the United Kingdom in Europe.
Revisiting the European Union’s New Fiscal Rules
EU leaders also resolved a dispute between the new government of Prime Minister Matteo Renzi in Italy and Germany over the interpretation of the European Union’s recently reformed fiscal rules. In their communique, they noted “the possibilities offered by the EU’s existing fiscal framework to balance fiscal discipline with the need to support growth” and added: “Structural reforms that enhance growth and improve fiscal sustainability should be given particular attention, including through an appropriate assessment of fiscal measures and structural reforms, while making best use of the flexibility that is built into the existing Stability and Growth Pact [SGP] rules.”
This language gives Renzi, who wants to loosen fiscal policy, some latitude to do so, even while Germany claims that the rules have not changed. In any case, because the new SGP rules have never been implemented or interpreted in detail, Germany’s claim is meaningless. With the political backing of the European Union to pursue a looser fiscal policy though new investment-friendly initiatives, Italy could easily miss some of its fiscal targets in the future. If Renzi delivers on his promise to undertake structural reforms, no one in Brussels is going to sanction him over breaching the fiscal rules. Even if the new Commission tries, the Council will block any sanctions.
The 2014 European Semester
EU leaders, slapping themselves on the back, “generally endorsed” the structural reform progress each made last year under the recently introduced “European Semester” process aimed at ensuring that the European Union reaches its five 2020 economic targets. These targets were: 75 percent employment of workers in the 20–64 age range, 3 percent of GDP for research and development spending, 20 percent of energy derived from renewables and 20 percent increased energy efficiency, reducing early school leaving to less than 10 percent and securing a 40 percent tertiary graduation rate for 30–33 year-olds, and reducing the number of Europeans in or at risk of poverty by 20 million. That the EU Council did not bother to take any further action on this critical issue, despite the highly uneven structural reform record in member states, highlights the European Semester’s implementation deficit.
The EU Council Conclusions make clear the disconnect between the European Union’s stated goals, the commission’s country-specific recommendations, and actual reform progress in member states.1 In the absence of an economic crisis, the European Semester is not likely to improve the structural reform implementation record at the member state level or constitute an improvement over the discredited open-method of coordination and peer-pressure avenues to structural reforms. The European Union remains without a coordinated policy instrument in this area.
Ukraine and Other Issues
The EU Council produced what seemed like a surprisingly clear ultimatum to Russia calling for serious negotiations over Eastern Ukraine and a return to Ukrainian control of border areas with Russia. A deadline of June 30 was set for new sanctions if President Vladimir Putin does not change his behavior in Eastern Ukraine. Moreover, with the Association Agreement between the European Union and Ukraine now signed, the European Union will have more options to help Ukraine withstand threats of Russian retaliation over any new sanctions. Still, it seems far from certain that the European Union will follow through.
The EU response to the annexation of Crimea has been more meaningful. All imports from Crimea are now banned from the European Union (including travel services, which will ruin Crimea as a cruise ship destination). Firms doing business in Crimea can also expect to face sanctions, likely crippling its economy and rendering any offshore energy reserves off the Crimean coast in the (very deep) Black Sea prohibitively expensive to extract, as Western and even Russian firms operating internationally may refuse to develop them to avoid sanctions. My colleague Anders Åslund estimates the cost of sanctions at $5 billion to $10 billion a year just from the annexation of Crimea. Imposing ongoing economic pain on the aggressor seems the extent to which Ukrainian territorial integrity will be defended.
Finally, it is noteworthy that Lithuania’s accession to the euro in 2015 is now formally approved, and that the European Union has now selected its first credible Muslim-majority country—Albania—to official candidate country status. Two other Muslim-majority countries could conceivably follow suit one day, but Turkey’s membership remains a long shot at best.
1. The European Parliament has highlighted similar implementation deficits in member states’ country-specific recommendations [pdf].