Publication - EMU - how much federalism? - Keynote Address by Peter Praet, Member of the Executive Board of the ECB, at the 5th Frankfurt Conference on Financial Market Policy, organised by the SAFE Policy Center of Goethe University, Frankfurt am Main, 27 October 2017
Ladies and gentlemen - I would like to thank the organisers Jan-Peter Krahnen and Hans-Helmut Kotz for inviting me to speak at the fifth edition of the Frankfurt Conference on Financial Market Policy.
The theme of the conference is well-chosen. Despite significant improvements to its architecture over recent years, there is a clear sense that Economic and Monetary Union, or EMU, remains incomplete. There is much less clarity and precious little agreement on what a complete EMU would look like, however. This is why the question posed by the organisers – “how much federalism” – is so relevant.
In my remarks, I would like to first review how federalism has evolved in the EU, highlighting that it is as much a process as it is an end-state. I will then – drawing on the economic concept of fiscal federalism – look more at the question of “how much federalism”, focusing on issue of risk-sharing and the role of different levels of governance within EMU.
Federalism in the EU
The nature of the discussion on federalism in Europe has changed quite dramatically over time. Shortly after the Second World War, the ambition for some was to create a “United States of Europe”, mainly as a way to avoid renewed, devastating war.
This vision was shared by those who laid the foundations of the European Union in the 1950s, most notably Jean Monnet, the first President of the European Coal and Steel Community. From today’s perspective, it may seem surprising that the start of such a grand project was confined to an area as specific as coal and steel. But Monnet and the other early architects of European integration clearly understood that political federalism was the end-point of long process, which had to be achieved incrementally and through focused actions in limited policy areas where the benefits of European cooperation could be clearly seen.
To quote one of Monnet’s contemporaries, Alcide de Gasperi,“we must begin by pooling only what is strictly essential to the achievement of our immediate aims, and do this by means of flexible formulae which can be gradually and progressively applied”. For these “fathers of Europe”, however, it was self-evident that such incremental measures would gradually move Europe deeper into federalism. Indeed, this clear sense of direction was, in their way, a key motor to keep the integration process moving forward.
Since then, the European integration process has tended to move in waves. There have been times when it has stalled, such as the during the “empty chair crisis” in the 1960s. And there have been times when it has unexpectedly sped ahead, such as with the launch of the Single Market Act in the 1980s, and the commitment to Economic and Monetary Union (EMU) in the 1990s. But today, there is some confusion as to where we stand.
In some ways, the degree of ambition to achieve a full political federation seems to have become more limited, which has led some to wonder whether the integration process will lose its forward momentum. This reflects in part the failure of the Constitution for Europe in 2005. The unsuccessful referendums in France and the Netherlands can be interpreted in different ways, but they clearly suggested that the people of the European Union were not ready to embark on the road towards full political federalism – or at least not at that point in time. It is also fair to say that the appetite for such federalism today is not much different from in 2005. In recent years there have been growing doubts about the European project.
At the same time, polls consistently show that European citizens support federal decision-making in a wide range of areas, ranging from energy to migration to the fight against terrorism. This reflects the fact that the benefits of federalism are much broader than its economic, fiscal and monetary dimensions. Indeed, since the EU was originally devised as a peace-keeping device, it is not surprising that one of the early initiatives for European integration was a motion to establish a European Defence Community, although this failed in 1954. While a full defence union is probably still unrealistic, there are increasing signs that further integration in this area could happen in the near future.
The Commission reflection paper published on 7 June of this year lays out proposals for establishing a European Defence Fund, which could form the nucleus of a future defence union. Last week, the European Council welcomed the significant progress made by Member States in preparing a Permanent Structured Cooperation (PESCO) in the field of defence, and the work done on the Commission’s proposal for a European Defence Industrial Development Programme (EDIDP). All this clearly chimes with the preferences of European citizens, three-quarters of whom support “a common defence and security policy among EU Member States”.[1]
The conclusion that follows is that we have to distinguish federalism as a state from federalism as a process. It may be the case that a full political federation is not currently desired by European citizens. But that does not mean that they reject the process of federalism – which is to say, the dynamic allocation and reallocation of responsibilities to different levels of government according to the preferences and needs of the time. While this process may benefit from the gravitational pull of a pre-defined end point, it can also advance without it, so long as actions are taken in areas where the benefits of cooperation are clear and the steps taken are legitimate in the eyes of citizens. Indeed, what gave the EU both momentum and popular legitimacy in the years after the war was its achievements – effective actions in specific areas – not necessarily the visions of a unified Europe.
Copyright: European Central Bank
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