Plans For Tougher Rule Enforcement: EU At Risk of Remaining a Toothless Tiger

  By Christoph Pauly and

The EU plans to enforce its rules by imposing tough penalties in the future. But experience suggests it won't be able to gets its way against major EU countries. Even the much-vaunted fiscal pact pushed through by Chancellor Angela Merkel to underpin the euro is at risk of being watered down.

European Council President Herman Van Rompuy wants a radical reform of Europe's monetary union. Zoom
REUTERS

European Council President Herman Van Rompuy wants a radical reform of Europe's monetary union.

When it comes to publicly urging greater integration, most European leaders aren't to be outdone.

"We need more Europe, not less," says German Chancellor Angela Merkel. "We don't need less Europe, but rather more intelligent integration," contends Luxembourg Prime Minister Jean-Claude Juncker. And French President François Hollande says: "We realize that the euro zone must have a common economic policy."

Herman Van Rompuy appears to take these affirmations literally. At next week's European Union summit, the EU Council President intends to present a bold concept to fundamentally restructure the monetary union.

According to this proposal, the European Commission, the EU's executive, would gain the right not only to recommend amendments to national draft budgets, but also to enforce them. If a government resists, the Brussels-based institution would have the power to impose fines.

In many European capitals, though, Van Rompuy's reform plans are controversial. Indeed, many politicians have been put off by the numerous rules and regulations that Brussels has already used to intervene in the economic policies of crisis-stricken countries. Until now, the threat of EU sanctions has mainly been confined to smaller member states.

For instance, early this year the Commission threatened to suspend subsidies for Hungary. Shortly thereafter, the nationalist Hungarian prime minister, Viktor Orbán, gave in to Brussels' demands. After all, 97 percent of all public investment in his country is financed to a significant degree by the EU.

By contrast, large countries such as Spain, Italy and France have so far had little to fear. Olli Rehn, the European commissioner for economic and monetary affairs in Brussels, knows better than to antagonize certain countries by imposing sanctions.

EU Recommendations Ignored

The so-called "European semester," for example, is designed to coordinate the economic policies of EU nations. Large teams of Eurocrats assigned to each country conduct elaborate analyses and make recommendations -- which often end up getting tossed in the waste basket in the European capitals. "The European semester lacks teeth," says Manfred Weber, deputy chairman of the parliamentary group of the center-right European People's Party (EPP) in the European Parliament.

Members of the European Parliament recently commissioned a study to compare the recommendations from 2011 and 2012. The results were sobering: "In many countries, even in Germany, hardly anything was implemented," says Sven Giegold, an MEP for the Green Party.

For instance, the European Commission criticized that secondary wage earners in Germany have little incentive to take on work and recommended reforming the tax-splitting provision for married couples. The German government has so far done nothing. The issue was simply too politically charged.

Even countries like Spain remained obstinate. According to the EU parliamentarians' report, when it comes to Madrid's tax policy, "Spain has undertaken measures that go in a different direction than the one recommended."

The degree of resistance to even small Brussels reform projects became apparent at the last EU summit on June 28. The topic of discussion was the budgetary recommendations of the European Commission. Malta objected to raising the retirement age, the Finnish prime minister found the debate on the retirement age to be "very difficult," the leaders of Cyprus, Belgium and Luxembourg opposed suspending automatic inflation-linked wage increases, and Bulgaria criticized the "poor analysis" undertaken by the European Commission.

Fiscal Pact Being Watered Down

Since December 2011, the so-called "six pack" of five regulations and one directive has been in force, and it already calls for draconian fines. If the European Council, the powerful EU body representing leaders of the member states, is of the opinion that a debt-ridden member state "has not taken effective action to correct its excessive deficit," it can impose a fine amounting to 0.2 percent of gross domestic product (GDP). Nevertheless, such a fine has never been imposed. A qualified majority on the European Council can reject any sanction.

The latest toy for euro fans is the fiscal pact, which still has not been ratified by all member states. In the future, this would only allow structural deficits of 0.5 percent of GDP. This regulation, which was primarily pushed through by the German chancellor, sounds hard and binding. But European politicians are already working to water it down.

Speaking before the National Assembly in Paris last week, French Prime Minister Jean-Marc Ayrault lobbied for support of the fiscal pact by saying that it would not limit the sovereignty of the French parliament. He then turned the pact's intention on its head: "The treaty imposes no constraints on public spending," he said.

Translated from the German by Paul Cohen

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