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What’s next for Europe?

On Friday, Euro­pean leaders came to an agree­ment to address the continent’s debt crisis. How­ever, Britain refused to join the agree­ment. Ioannis Livanis a lec­turer in polit­ical sci­ence and the inter­na­tional affairs pro­gram at North­eastern, ana­lyzes the deal, why Britain didn’t agree to be part of it and what is next for Europe. 

What are the major points of this agreement, and what are the immediate next steps?

Under the old Sta­bility and Growth Pact, states agreed to par­tic­i­pate in a peer-​​reviewed budget sur­veil­lance mech­a­nism that caps budget deficits at 3 per­cent of GDP. After con­sid­er­a­tion, the Ecofin (Eco­nomic and Finance min­is­ters) can trigger the “exces­sive deficit pro­ce­dure” with a majority vote, pos­sibly resulting in fining recal­ci­trant states. How­ever, this mech­a­nism has proved insuf­fi­cient time and again, whether it’s because a state con­ceals its finances (Greece), or uses its large con­tin­gent in Ecofin (France and Ger­many), to vote against such measures.

The pro­posed agree­ment would reverse this system, and permit auto­matic sanc­tions for states run­ning a deficit over 3 per­cent, unless a super­ma­jority of states voted against the penalty. This will ulti­mately have to be processed through the Euro­pean Court of Jus­tice. It also com­mits its sig­na­to­ries to a deficit no greater than 0.5 per­cent of GDP in periods of eco­nomic sta­bility (written in domestic con­sti­tu­tions), and requires them to submit national bud­gets to the Euro­pean Com­mis­sion for approval.

How­ever, what we have is an agree­ment to nego­tiate the afore­men­tioned changes, rather than a change. Yet, the British veto has blocked any Euro­pean Union (EU) treaty (all EU treaties require a unan­i­mous vote). Hence, the 17 Euro­zone mem­bers and six more have agreed to a treaty among states out­side the EU. This is a major fault point, as the mech­a­nisms described above require the involve­ment of major EU insti­tu­tions, and there can be no such involve­ment unless every­thing gets written in an EU treaty. As such, this agree­ment may be quicker to set up, but it may prove to be much less strin­gent than the existing mechanism.

How significant is this agreement to Europe’s political and economic stability going forward?

We have yet to see the actual nego­ti­a­tions, but I believe the 0.5 per­cent target will be nego­ti­ated up to the old 3 per­cent, as almost all EU member states have not, and cannot, meet this cri­te­rion, including Ger­many. How­ever, this new agree­ment is a mas­sive change toward supra­na­tion­ality (and fed­er­alism). Tax­a­tion and spending are two of the few policy areas remaining out­side EU com­pe­tence, and bringing them under a common EU mech­a­nism would create a brand new union. Even defense will not be spared, as it is part of state budgets.

The agreement’s sig­nif­i­cance lies also in its attempt to calm mar­kets, and con­vince investors that the EU will not let any of its mem­bers default on its debts. In this respect, there is no new agree­ment in aug­menting the tem­po­rary Euro-​​bailout fund (remains at 440 bil­lion euros), which is already run­ning low, and Italy’s debt is looming in the horizon. They did, how­ever, agree to speed up the cre­ation of the Euro­pean Sta­bility Mech­a­nism (500 bil­lion euros), and pro­vide the IMF with another 200 bil­lion euros. But these last two have yet to be realized.

Why didn’t Britain back this plan, and what will this refusal mean for the country in the short and long term?

Britain’s “pick and choose” atti­tude in terms of major EU agree­ments is not new, and it has received opt-​​outs from sev­eral EU treaties. Fearing that pro­posed finan­cial ser­vices reg­u­la­tions would affect the London financiers, Prime Min­ister David Cameron pro­posed yet another opt-​​out, which others refused. Hence, Cameron had no choice but to veto the agree­ment, as it ran counter to Britain’s inter­ests, and Euro­pean leaders chose to go for­ward without Britain.

It seems Euro­pean leaders have grown tired of Britain reaping the ben­e­fits of coop­er­a­tion and opting out of pro­vi­sions if their inter­ests are at stake. This veto will alienate Britain even more from the Con­ti­nent, and may trigger the “Euroscep­tics” in Cameron’s party to ask for yet another ref­er­endum on mem­ber­ship. How­ever, the reality remains that Britain con­ducts over half of its trade with EU coun­tries; that France needs Britain as a coun­ter­bal­ance to the ever-​​soaring German economy; and that Ger­many needs Britain to coun­ter­bal­ance the French propen­sity for tra­di­tional indus­trial policy.

– by Greg St. Martin

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