Barroso lets his hair down - and British media loves it

Would the UK have zero influence outside the EU? 

Outgoing European Commission President José Manuel Barroso is in London, and he has made a few interesting remarks about the Tories, Brexit, EU free movement and Grant Shapps. Wading into the most intense debate on EU migration in the UK since 1066, he has really hit the headlines. 

However, Barroso no longer has any real say over decisions in the EU - it's Juncker's show now, and he has made addressing the UK's concerns a key priority, although it remains very much an open game. Also, remember, the bulk of Cameron's renegotiation won't be with the Commission - it'll primarily be with member states (though having the Commission on-side will certainly help). 

In any case, Barroso told the BBC's Andrew Marr Show yesterday:

"So far the British government has not presented a proposal, a concrete proposal [on reform of EU free movement rules]. There are ideas floating, there are rumours. I cannot comment on specific suggestions that have not yet been presented. What I can tell you is that any kind of arbitrary cap seems to me to be not in conformity with the European rules."

Barroso is of course right - restricting the number of EU workers coming to the UK, via quotas, would be illegal under EU rules - as we argued in our recent flash analysis and most people agree on. The question is whether changes to these rules are possible - this is a big discussion which we've looked at here. However, Barroso also tried to strike a more conciliatory tone when he stressed that there are "widespread concerns in the UK and elsewhere about abuse of free movement rights" and further changes could be made to address them, although "changes to [EU migrants' access to benefits] need all countries to agree."

Barroso had some less well-targetted comments, claiming for example, that the UK would be "irrelevant" and "have zero influence" outside the EU, while also appearing to link EU membership to Cameron's ability to fight the Ebola virus.

At an event this morning, Barroso was also asked about remarks made by Conservative Party Chairman Grant Shapps, who was sent out yesterday to dismiss Barroso's comments, calling the outgoing European Commission President “an unelected bureaucrat”. Barroso - now clearly free to let his hair down - went all in:

“Since I was 29 years old, I was elected in my country…I don’t know who this gentleman is, but certainly he has not more democratic legitimacy than I have.” 

Which begs the question, if Barroso doesn't know who Shapps is, how can he comment on the man's electoral record? Anyway, it allowed the Tories to play the 'we stand up to Brussels card'.

Is the UK's new man in Brussels a dark horse?

On his Telegraph blog, Open Europe Director Mats Persson looks at Lord Hill's nomination as the UK's next European Commissioner:

This morning, Brussels watchers, virtually in unison, typed the following name into Google: Lord Hill. David Cameron’s long-awaited nomination for the UK’s next European Commissioner was hardly a household name.

In 2009, Gordon Brown nominated Baroness Ashton for the post – the then leader of the House of Lords, known to few people outside of Westminster. As it turned out, Ashton grew in the role and will leave Brussels with a relatively good reputation. The main problem was that Asthon’s position – EU foreign affairs chief – meant long absences from Brussels. This proved critical as, whether we like it or not, working the Brussels corridors and getting stuck into the agenda-setting “College of Commissioners” are absolutely vital if the objective is to make as many EU proposals as possible come with a UK flavour. Some people hate this stuff – including William Hague who just refused to go anywhere near the role despite being the most obvious candidate – but others thrive on it.

I was always in favour of Cameron sending a high-profile figure to Brussels. It would have sent a strong signal that EU reform is for real and improved the likelihood of the UK getting a top economic job – internal market, competition or trade. Lord Hill lacks the obvious external gravitas and high profile, so in that sense, his appointment has reduced the chances of the UK getting a top job. Cameron has been criticised for not sending a sufficiently strong signal of intent. However, not least since I expect several portfolios – including internal market – to be broken up or altered, the job allocation is unusually unpredictable, and we shall have to wait and see. Also, sending someone with a lower profile may work in the UK’s favour. A heavy hitter – particularly with a Eurosceptic reputation – in combination with a big portfolio may have been too much for EU partners and Juncker to swallow, not to mention the European Parliament. And Lord Hill is hardly a novice, having worked across departments and at the heart of government, including as Chief of Staff to John Major, during which he was involved in negotiating the Maastricht Treaty.

On making EU reform happen – which remains the key objective – Lord Hill is a clever operator with a fantastic reputation in Westminster circles. Brussels is a very different place to Westminster, but if he can replicate his operational style over there – winning people over, striking deals – then perhaps he’s exactly the type of person the UK should be sending. Opting for a Viviane Reding-type, who does a lot of shouting but achieves little, wouldn’t be ideal either.

There's still no denying that choosing someone less known remains a gamble. But Lord Hill may yet surprise plenty of people both at home and abroad.

MEPs' great hope for more EU democracy and transparency to be decided by... a secret ballot

Own-goal alert.

When selected as the Socialists' candidate for the European Commission President, Martin Schulz claimed that:

“I want to be the first President of the Commission who is not the result of a backroom deal in a Brussels office."

This is the main argument advanced by supporters of the spitzenkandidaten process (including by the current front-runner, Jean-Claude Juncker) i.e. that having the Commission President nominated by the largest political group within the European Parliament is more transparent and democratic than the previous process whereby EU leaders agreed the Commission President amongst themselves. For the first time, voters would be able to directly determine who would get this crucial post., and be able to hold politicians to account for their choice.

However, when the Parliament itself comes to vote on the appointment, as per its rules of procedure, the vote is held by, wait for it, a secret ballot: 

Rule 105 : Election of the President of the Commission

1. When the European Council proposes a candidate for President of the Commission, the President shall request the candidate to make a statement and present his or her political guidelines to Parliament. The statement shall be followed by a debate.

The European Council shall be invited to take part in the debate.

2. Parliament shall elect the President of the Commission by a majority of its component Members.

The vote shall be taken by secret ballot.

Although this is not a new development - Barroso was confirmed by secret ballot - this time it was supposed to be different. It is hard to stress just how absurd it is for MEPs to decry a "stitch-up" by national leaders and then refuse to allow themselves to be subjected to scrutiny. If the idea is to make the appointment process more transparent and to 'put voters in charge', how can voters hold their MEPs to account when they do not know how they voted? How will - for example - Labour voters know if their MEPs will follow the party line and vote against Juncker should he emerge as the European Council's preferred candidate?

For all the laudable talk about democracy, transparency and accountability, critics will be forgiven for thinking that this is about the European Parliament trying to carve out more power and influence for itself within the EU structure. Yet another reason to drop the spitzenkandidat charade and allow national leaders - who have a much stronger democratic mandate - to make this decision.

If EU law is followed, Scotland will join the EU just before Serbia

Our Director Mats Persson writes on his Telegraph blog:

The UK must be the first country, with the forthcoming Scottish and EU referenda, to simultaneously have an intense political debate about the difficulty or otherwise of both joining and leaving the EU. Traditional assumptions are being bent in all sorts of directions, with senior UK politicians approvingly citing EU Commission President Jose Manuel Barroso for suggesting it would be “very difficult, if not impossible” for an independent Scotland to join the EU.

Like Catalonia in Spain, rightly or wrongly, Alex Salmond’s case rests in part on the argument that "if we leave one club, we can safely join another." It’s an insurance policy against the uncertainty which is a such a killer in any referendum to change the status quo. So is Barroso right?

Iceland’s accession talks with the EU – which were terminated since the Icelanders turned cold on the idea – would, in purely legal terms, come close to those of Scotland. Iceland is part of the European Economic Area, and therefore almost an EU member. Scotland has been an EU member for 40 years. Both would face tricky negotiations, like protecting their fishing industries.

There are basically six steps (by my rough categorisation). Salmond’s biggest problem is that for half of these, each of the 28 EU states, including rUK and Spain, has a veto:

Step 1 – Scotland applies to join the EU: Under EU law, it would have to be an independent country to apply.

Step 2 – The European Commission “screens” Scottish law to see if the country is compatible with EU membership – this won’t be an issue.

Step 3 – EU governments decide whether to approve Scotland’s EU application. All EU states have a veto.

Step 4 – The EU and Scotland begin negotiations over individual EU policy areas. There are now 35 so-called “accession chapters” covering everything from the euro to employment law to the EU budget. Each country has a veto over the decision to both open and then to close every single chapter – ask Turkey how easy that has proven (read: Cyprus and France). It’s in these talks that Salmond would need to deliver on his pledge to get an opt-out from the euro, as well as replicating the UK’s special deals on the EU budget, crime and immigration and passport controls.

Step 5 – When the 35th chapter is agreed, the Accession Treaty with the Scottish terms of entry is drafted.

Step 6 – This Treaty must then be ratified by the Parliaments of each EU country and the European Parliament. If one says no, the deal falls.

Iceland officially applied to the EU in June 2009. In 2013, when the bid was dropped, it had completed about a third of the negotiations. So if the letter of the law is followed, Scotland might join the EU just before Serbia, several years from now.

However, in the EU, political expediency tends to trump the letter of the law. I suspect that, given the stakes, if the Scots do pull the trigger, the EU will engage in the kind of legal acrobatics that it’s proven so good at in order to fast-track an independent Scotland to membership, with or without a euro opt-out (though, as Andrew Lilico has pointed out, there might be a range of practical currency issues).

No matter what, it would be a mess. In truth, we have little idea what’s going to happen if Scotland goes independent. And I suspect that in itself undermines Salmond’s case.

France must take inspiration from David Cameron on Europe

This is the argument made in a very interesting op-ed penned by French MEP (and former Justice Minister) Rachida Dati, of the centre-right UMP party, for today's Le Figaro. We reported on the article in today's press summary, but we thought it was worth translating it (almost) in its entirety.

Here it is:

Is a new wind blowing through Brussels? The old myth of [European] federalism may be falling...The elite cheers the self-proclaimed 'Europeans', who, to preserve their post, write pamphlets lamenting this technocratic Europe, rejected by the peoples and origin of all populist movements. Some others want to change things, acting against the tide of the 'Brussels elite'. These are the modern, the courageous, the defenders of a realist Europe. David Cameron is one of them.

When he proposes to the British people a referendum on the UK's future in the EU, he acts responsibly. To deny [a referendum] to the British people, who are asking for it, would be the best means to exacerbate the anti-European sentiment that is on the rise not only across the Channel, but everywhere in Europe. When [David Cameron] proposes repatriating certain competences from Brussels to the national level, that's what we want too!

We believe, like David Cameron, that the future of Europe depends on it. It's with this same spirit that we must move forward with useful deregulation. David Cameron has had the audacity to put this idea onto the European agenda. Even [European Commission President] Barroso, the 'pusillanimous', has been forced to launch the REFIT programme, aimed at simplifying and easing EU law.

[...]

[French President] François Hollande is right to be cautious with the British offensive, which is good in the form, but whose exact outline we don't know yet. An ultra-liberal initiative would backfire against the people we say we are listening to. It is imperative to simplify [EU regulation] to boost the competitiveness of European businesses, especially SMEs. But this simplification must not be done to the detriment of certain rights of workers or the safeguard of citizens’ private life. However, this is a debate that deserves to be opened.

Ms Dati then goes on to address a specific EU policy area:

I plead for this simplification to be applied to the domain of energy as a matter of priority...The most serious problem [with EU energy policy] is the multiplicity of contradictory environmental, energy, and climate targets. Taken individually, these targets are laudable. But the facts have proven that, combined, they could cancel each other out - not to speak of the damage done to the competitiveness of our businesses. 

This is the case with renewable energy. Due to the subsidies it benefits from, the market is distorted as its use is prioritised. By their own nature, these sources of energy are intermittent, and cannot cope with energy demand on their own...I intend to make the ambition for a European energy policy that is more flexible in its targets and, finally, consistent, one of the priorities of the UMP's campaign for [next year's] European elections.

The UMP must finally stop hesitating about its European stance. We have never been listened to so much as when we knew how to talk and listen to the [French] people, particularly the popular classes. On Europe, they are asking us for a realist revolution. Let's listen to them!   

The war on EU red tape: Will this time be any different?

The headlines above speak for themselves. From time to time, the European Commission makes an announcement that it will make EU business rules "lighter", "simpler" or "smarter". But it deliberately stays away from the terms "deregulation" or "less regulation". They are usually a mixed bag, ranging from measures with real impact to irrelevant to even involving more regulation. To date, none of these initiatives have come anywhere close to achieving less, but better EU regulation across the board, that we and many businesses are calling for.

The European Commission has now unveiled the first results of REFIT - or its Regulatory Fitness and Performance Programme. Based on a 'screening' of the entire stock of EU legislation, the Commission has set out what it's planning to do (or not do) to make EU law lighter.

So will this time be different? Well, yet again, the proposal is a mixed bag.

The good stuff:

The Commission lists a number of proposals it has already put out, and are pending approval from member states and MEPs. Some of these would have a positive impact, including:

• Making EU public procurement rules more SMEs-friendly, mainly via the reduction of the paperwork needed to bid for contracts;
• Making it easier for professional qualifications to be recognised in different member states;
• A one-stop-shop for clinical trials.

The Commission also stresses it is already carrying out (or will do so in the near future) thorough evaluations of EU regulations in a dozen policy areas. These include:

• All EU rules on health and safety at work (no less than 23 separate Directives at the moment) - though the evaluation would only be published by the end of 2015;
• EU rules on temporary agency workers (which cost the UK economy around €2 billion a year);
• The Renewables Directive, which is dated and ridiculously micro-managing.

These rules are in desperate need of revision, so well done Commission for identifying them.

The not-so-good stuff:

Dropping proposals that are dead in the water: The Commission is offering to scrap proposals that are pending and unlikely to be adopted, which of course has no tangible impact as they haven't been adopted yet. Some of the proposals identified (e.g. a Directive simplifying VAT obligations or a Regulation on the statute of a European private company) have been pending for ages and were unlikely to ever come to pass.

Turning several rules into one rule:  The Commission also puts forth several ideas for the 'codification' and the 'consolidation' of existing legislation, meaning turning different sets of rules into one set of rules. As we pointed out in the past, if you merge ten existing directives into one, you definitely make the acquis more user-friendly, which has value in itself. However, if the substance of the rules remain, the impact on business will also remain pretty much the same, so this is of limited value on the ground.

More EU harmonisation: Somewhat cheekily, the Commission has also snuck in a proposal for more EU integration in a contentious area by presenting a Common Consolidated Corporate Tax Base as an example of simplification. Now, there may be a business-case for a CCCTB, but this also seems like back-door 'harmonisation' - which is a very different thing from 'simplification'.

In conclusion, so far there are some positive steps in here, but whether it will turn into a serious, de-regulatory exercise - with real impact on businesses - will very much depend on what comes out of the Commission's review and level of follow through.
     

Why Barroso’s pessimism about achieving EU decentralisation is sort of irrelevant

The Open Europe team is back from the UK party conferences and, when it comes to the UK’s attempt to reach a new settlement in Europe, by far the most common comment we get is: “The EU Commission won’t allow it.” Particularly true amongst the Tory grassroots. European Commission President Jose Manuel Barroso’s interview today with the Telegraph will no doubt have served to reinforce this view.

He said the only way to reform the EU was to review the EU’s body of legislation, the acquis, on a case-by-case basis:

“The other one is to have a fundamental discussion about the competences of the EU, even in terms of renationalisation. I think the second approach is doomed to failure…Britain wants to again consider the option of opting out. Fine, let's discuss it but to put into question the whole acquis of Europe is not very reasonable…What is difficult, or even impossible, is if we go for the exercise of repatriation of competences because that means revising the treaties and revision means unanimity.”

Barroso is sort of misrepresenting the UK position - the debate has moved away from unilateral opt-outs, but let’s not split hairs. In addition to that, there are two reasons why you can take these comments with a pinch of salt: first, Barroso is gone in a year. Secondly, if it came to it, the Commission has a very limited role in the negotiations over brining powers back anyway.

The European Council has to “consult” the Commission and it also has limited representation in a so-called European Convention (needed for a full-scale treaty change, as opposed to a limited one), but that’s pretty much it. Still, it’s very good to have the Commission on-board of course, for a whole range of reasons (some of the stuff the UK wants outside EU treaty change will require a Commission proposal) but an antipathetic Commission is probably not a deal-breaker.

An antipathetic Barroso certainly isn't.

State of the (same old) European Union

It’s that time of year again, when European Commission President José Manuel Barroso delivers his ‘State of the European Union’ speech, laying out all his hopes and dreams for the coming year – few of which make it through the decision making gauntlet.

This year’s speech seems little different and, frankly, was a bit all over the place.

Barroso talked up the prospect of greater national flexibility, but, as always, within the end-goal of ever closer "political union". He said:

"The EU needs to be big on big things and smaller on smaller things - something we may occasionally have neglected in the past. The EU needs to show it has the capacity to set both positive and negative priorities."

"I value subsidiarity highly. For me, subsidiarity is not a technical concept. It is a fundamental democratic principle. An ever closer union among the citizens of Europe demands that decisions are taken as openly as possible and as closely to the people as possible.

"The European Union must remain a project for all members, a community of equals."

"I believe a political union needs to be our political horizon, as I stressed in last year's State of the Union. This is not just the demand of a passionate European. This is the indispensable way forward to consolidate our progress and ensure the future."

Therefore, despite mentioning subsidiarity, Barroso's end goal remains clear – full political union. A feature of the eurozone crisis has been that Barroso and the Commission have been increasingly sidelined when setting the agenda (which member states now dominate). This is also due to the fact that there will be a new Commission in place soon.

The Q&A session revealed that, despite Barroso's professed desire to "find ways" to "make Europe stronger", he is rather less open in practice.

In response to Conservative MEP Martin Callanan (who had said he had no interest in being European Commission President) he said:

"Let me tell you very frankly, I think that even if you were interested you would not have a chance to be elected as President of the Commission. And do you know why? I’m not saying that happily. Because I think your party, and your group, is increasingly looking like UKIP and the eurosceptic, anti-European group. And I start to have some doubts that you’re going to be elected in Britain yourself, and if it’s not UKIP that is going to be the first force in the British [European] elections. Because when it comes to being against Europe, between the original and the copy, people prefer the original. That’s probably why they’re going to vote more for Mr Farage than for Mr Callanan. And I don’t say this with any kind of satisfaction, because even if we have some differences, we have worked very constructively with the Conservatives – the British Conservatives and the Conservative group – in many areas."

Once again, it seems the Commission would rather help UKIP rather than work for reformers who don't share a belief in 'ever closer union'.

Barroso's analysis of the crisis hinted at his on-going denial of the role of the euro in causing the crisis:

"We can remind people that Europe was not at the origin of this crisis. It resulted from mismanagement of public finances by national governments and irresponsible behaviour in financial markets."

"What I tell people is: when you are in the same boat, one cannot say: 'your end of the boat is sinking.' We were in the same boat when things went well, and we are in it together when things are difficult."

There is still a sign that Barroso believes that all eurozone woes were caused by the financial crisis – though it may have been a trigger and there is no doubt that national finances were mismanaged, there can (or should) also be no denying that the structural flaws of the euro are what have caused the crisis to be as long and deep as it has been.

The Commission's hope that banking union is the eurozone cure has already come up against resistance from Germany, which is deeply sceptical of the Commission's desire to increase its own power. Barroso's insistence that the proposal be implemented in full before next year's elections will not have helped much on this front and simply highlighted how out of touch he remains with the concerns of even core eurozone countries.

So, despite some lip-service to greater flexibility, reform and acceptance of the shortcomings in the EU and the eurozone, the solutions presented by Barroso remain the same – greater political integration. Fortunately, this is very likely to be Barroso's last 'State of the Union' speech, while member states such as Germany and the Netherlands have shown themselves more open to reform.

What the Egyptian crisis tells us about the (in)effectiveness of EU aid

As the crisis in Egypt continues to intensify by the day, European Council President Herman Van Rompuy and Commission President José Manuel Barroso warned in a joint statement yesterday that the EU would "urgently review in the coming days its relations with Egypt" - including the new aid package worth around €5 billion that was pledged to Cairo last year.

EU member states' ambassadors are holding talks today, followed by a meeting of EU foreign ministers on Wednesday. For the moment, though, Egypt's new military-backed government does not seem very impressed by threats coming from Brussels. As Foreign Minister Nabil Fahmy put it,

"I want to determine what is useful and what is not and what aid is being used to pressure Egypt and whether this aid has good intentions and credibility. We are not looking to replace one friend with another but we will look out to the world and continue to establish relations with other countries so we have options."

There is plenty of political posturing in Mr Fahmy's words, but this kind of reaction inevitably raises questions over how the EU has handled its relations with Northern African countries over the past few years, particularly via the European Neighbourhood Policy (ENP). 

In a report we published in May 2011, we stressed how, in the name of 'stability', the EU had consistently increased funding allocations for countries like Egypt and Tunisia, despite the European Commission itself noting limited progress on human rights and democratic reform over the years. In particular, we argued that the Commission's reliance on so-called 'budget support' - whereby EU aid money is given directly to neighbouring countries' governments and then directed towards specific projects by the latter - was clearly problematic, given the lack of transparency on how these funds were used.

The European Court of Auditors recently made a similar criticism in a tough report on EU aid to Egypt, where it suggested that the European Commission had been "too flexible" in assessing whether the Egyptian authorities were actually meeting the conditions for granting 'budget support'. The Court noted that,

"The Commission and EEAS [the EU's diplomatic service headed by Baroness Catherine Ashton] have not been able to manage EU support to improve governance in Egypt effectively. This was partly due to the difficult conditions they have faced in Egypt but also to shortcomings in the way the Commission and EEAS have managed their cooperation with Egypt."

The recent events in Egypt add one further element of concern. Despite its generous funding (Egypt was initially allocated approximately €1 billion for the period 2007-13, around 60% of which via 'budget support'), the EU seems to have failed to gain any significant leverage on the Egyptian establishment. Calls to stop the violence have been ignored - and the threat to stop the disbursement of aid has so far been openly snubbed.

This is of course a complex political situation and the circumstances are difficult, but given that the ENP is a very political aid instrument (seen by the EU as a tool to exercise its 'soft power'), it is getting increasingly difficult to see what value it has added in the case of Egypt.

'Le Barroso bashing' continues in France

If you thought the wave of French attacks on European Commission President José Manuel Barroso was ebbing away, you were wrong. Today, it was the turn of French Socialist MP Claude Bartolone - who's also the President of the National Assembly, the lower house of the French parliament - to fire on all broadsides.

Bartolone told Le Parisien,

"Barroso is an outdated man. Angela Merkel is right when she says that he is a casting mistake [not sure what Mr Bartolone is referring to here]…His way of acting is intolerable…But, above all, Barroso embodies a Europe that no longer corresponds to today’s world…Barroso is not the Europe of the XXI century, more protective, more concerned about growth and employment."

Importantly, it seems the French government is not distancing itself from the latest remarks made by Industry Minister Arnaud Montebourg, who has accused Barroso of being "the fuel" of France's far-right Front National and other populist forces across Europe, such as Beppe Grillo's Five-Star Movement.

On the contrary, Najat Vallaud-Belkacem (see picture), the government's spokeswoman, told the press today,

"As regards the substance of the remarks, that is, reminding the European Commission that European governments and the people they represent have their role to play on the European stage…these are remarks we do share."

With respect to French media, Libération's Brussels correspondent Jean Quatremer brings up a point that will sound familiar to regular readers of our blog (remember the Le Monde editorial likening Barroso to a chameleon?). He writes,

"By promoting this [free trade] treaty [with the US], that risks translating into a rise of euroscepticism, Barroso shows that his agenda is no longer European, but Atlantic. According to our information, he is preparing to campaign to obtain the post of Secretary General at the UN or NATO. For that, he needs the consent of the Americans – hence the guarantees he gives them [on the EU-US free trade deal] and the attacks on France."

The last time French President François Hollande and Barroso were sitting at the same table - at the G8 summit in Northern Ireland - le nouveau spat had just kicked off. What will they tell each other when they meet for the EU summit in Brussels tomorrow, we wonder...   

Le Monde's 'Up yours Delors' moment: Barroso is 'a 57-year-old chameleon in search of a good job at NATO or the UN'

As we reported in our daily press summary, European Commission President José Manuel Barroso has drawn criticism from the French government after he described France's insistence to exclude the audio-visual industry from EU-US trade talks as "completely reactionary". Now, the French press has caught up as well.

And it's pretty harsh.

Le Monde has a tough editorial under the headline, "Monsieur Barroso, you're neither loyal nor respectful!" We thought it was worth translating it almost in its entirety. Here goes,

For once, the Europeans were united vis-à-vis the Americans […] The President of the European Commission, José Manuel Barroso, has torpedoed this unity by stating, right before the start of the [G8] summit, that France’s position on the cultural exception was “reactionary”. 

It is of little importance to know whether France is [reactionary]. Or whether or not one needed to exclude, in the name of the cultural exception, audio-visual services from the negotiating mandate handed to the European Commission. In order to be ready, the 27 [EU member states] negotiated at length and until late at night on Friday, 14 June. France ended up imposing its views and scored a political victory.

And whether Mr Barroso was satisfied with this outcome or not is of little importance, too. He’s the President of the Commission and is bound by the mandate he’s been given by the [member] states. By denigrating the agreement the day after it was concluded, Mr Barroso is not acting as the guardian of the [EU] Treaties, as his mandate requires.

[…]

The Trade Commissioner, Belgium’s Karel De Gucht, has adopted a comparable attitude. He didn’t manage to impose his views. A bad gambler, he pretends that it will be possible to re-introduce audio-visual services in the negotiation. That’s empty talk: everything is possible under unanimity. In reality, France retains its veto on the issue. But Mr De Gucht has an excuse: he will negotiate with the Americans and is afraid that the latter retaliate by excluding from the negotiations some domains that are strategic for the Europeans. He wants to be able to go back to the 27 [EU member states] to amend his negotiating mandate, if necessary.

Mr Barroso, on the other hand, seems to pursue far more personal ambitions. During eight years, the President of the [European] Commission has stood out for his ductility. Defender of small states as Portuguese Prime Minister, a liberal at the time of his appointment in Brussels ahead of the 2008 crisis, pro-Sarkozy during [former French President] Nicolas Sarkozy’s presidency, and incapable, since, of taking the smallest political initiative to revive the Union, he has accompanied the decline of the European institutions.

Today, aged 57, this chameleon is searching for a future. In search of a good post, at NATO or the UN – who knows? – he has chosen to pander to his Anglo-Saxon partners, the British Prime Minister and the US President. At the head of the Commission, Barroso has been a good reflection of Europe: a decade of decline. 

This is "Up yours Delors" territory - and arguably the strongest attack on Barroso until date.

A European Commission spokesman was quick to point out that Barroso didn't have France in mind when he made his remarks. There are several layers to this episode, but if anyone thought that the French are becoming any less sceptical of the Commission, they are mistaken. If anyone thought that turning the Commission into an all-powerful eurozone budget police was only one German election away, that is...

Barroso's Christmas wish list

Christmas is approaching and, in that spirit, José Barroso, the President of the European Commission, has written himself a wish list of presents for the EU member states (and particularly the Eurozone) to hand over. The Christmas wish list, or as Barroso puts it "A Blueprint for a deep and genuine EMU" is as follows:

For the next 18 months:

Wish number one: the "rapid adoption of current Commission proposals such as the two-pack and the Single Supervisory Mechanism" - i.e giving the ECB powers over eurozone (and perhaps other) financial supervision.
Wish number two: a eurozone "rebalancing" budget in addition to the EU budget. - more money.
Wish number three: a "Convergence and Competitiveness Instrument" for the eurozone - mutual contracts to enforce bailouts and deficits.
Wish number four: "external representation of the euro area in international economic and financial organisations and fora." - some more foreign postings.

And thinking ahead for next Christmas (next 18 months to 5 years):

Wish number five: deeper [eurozone] coordination in the field of tax policy issues as well labour markets
Wish number six: an "autonomous" and enhanced eurozone fiscal capacity that will  "rely solely on own resources" - a eurozone tax, budget and treasury- perhaps a financial transaction tax?
Wish number seven: a "power of intervention in the design and implementation of national fiscal policies"
Wish number eight: "The common issuance... of so-called eurobills", requiring a treaty change - but will the German taxpayer want to underwrite (and perhaps lose) money lent to Greece?

For the Christmas after that (for 5 years time):

Wish number nine: "extend the competences of the Court of Justice, i.e. by deleting Art. 126 paragraph 10 TFEU and thus admitting infringement proceedings for Member States or by creating new, special competences" - i.e further power over national economies.
Wish number ten: "a commensurate involvement of the European Parliament in the EU procedures. The European Parliament, and only it, is that Parliament for the EU and hence for the euro."

And this would leave you with Barosso's ultimate wish: "a banking union, a fiscal union, an economic union [and] as a fourth element, appropriate  democratic legitimacy and accountability."

German Foreign Minister Guido Westerwelle's response to the proposals was: “It is good that the EU commission is putting forward proposals for a stronger co-operation in the eurozone. But eurobonds, bills or any other form of joint debt liability in Europe are going in the wrong direction."

To many the proposals may seem alarming, but in truth, most of these proposals have been floating around for a long time. The novel aspect was the proposed time frame outlined by the Commission and combining them in a single vision. Notably though, many similar proposals by the Commission have resulted in very little, especially since the eurozone crisis has put an increasing emphasis on the intergovernmental decision-making found in the European Council.

Herman Van Rompuy's own list (expected at the December summit) which will probably be more modest and less eye-catching is likely to be more important simply because it more closely reflects the views of the key decision makers in the process.

The view from Sweden: Barroso is making it more difficult to be pro-EU

This is spot-on.

Sara Skyttedal, vice-president of the Youth wing of the European People’s Party – the pan-EU party Commission President Jose Manuel Barroso belongs to – has a blistering piece  in today's Svenska Dagbladet. She takes Barroso to town over his 'State of the Union' address, in which he called for Europe to become a "federation":

"As Vice-Chairman of [the EPP's] youth wing, YEPP, I can only say that representatives such as Barroso make it more difficult to be pro-EU [EU-vän] “

She continues:

"At a time when crises are raging across Europe and when countries need a helping hand, the eurocrats see an opportunity to demand extensive transfers of power and centralisation in return. Barroso suggests the creation of a banking union and argues that the EU in the end must become a federation. This is a frightening development, since even though Barroso himself says that a superstate isn’t the end goal, it is it hard to interpret his vision in any other way.”

She argues that politicians have ”time and again” ignored the subsidiarity principle. Taking aim at the Swedish political class, Skyttedal says:

“Just as there are many signs that the EU makes it harder for member states to fight the centralisation of powers, Sweden has reinforced this tendency on its own”, arguing that the requirement for EU-membership should be deleted from the Swedish Constitution.

“Those of us who are active in the EPP…must take a bigger responsibility for the liberal-conservative family in Europe. In these circles we must dare to bring up the problems that exist. Large parts of our respective parties were once active in the Yes-campaigns, both for EU and euro membership, but it’s time to swallow our pride and take up the fight against supranationalism and to show it’s possible to have a realistic attitude to the EU, which doesn't automatically mean arguing in favour of leaving the project altogether."

“The EPP-family is the biggest one in Europe, but includes members that unfortunately work in the opposite direction to the EU that we rather want to see. What we think the EU needs is less supranationalism, less political interference and definitely not a federation.”

Hear hear.

Sweden isn't exactly a European hegemon (those ambitions pretty much died in 1709) but it's an interesting country for the UK and Europe in at least two respects: first, it's actually doing well, both on the fiscal and banking front. Secondly, how the country responds to the drive for further euro integration will be an interesting proxy for how easy it'll be to reconcile a more tightly knit eurozone block with the EU-27. Most importantly, the banking union with the single market.

70-80% of Swedes oppose joining the euro, and that debate is dead (baring random calls from the occasional politician and opinion former who still cling on to that particular dream - it's almost cute), but the country has fundamental choices ahead of it - such as whether or not it joins the the ECB's banking supervision structure - so Europe needs to be discussed. 

Though a majority of Swedes would echo the sentiment contained in Skyttedal's article, there is still a contingent in Sweden, particularly on the centre-right (associated with Carl Bildt, the Swedish Foreign Minister) that clings on to a vision of an ever-closer integrated EU as a liberal inroads into its dominant domestic social democratic model, and also as a catalyst for Swedish internationalist idealism, i.e. a 'peace project'.

Historically, both of these assumptions contained some truth but firstly, Sweden's social democratic domination has already been broken and secondly, the single currency - clearly - has proven less of a liberal trade project and more an ideological over-reach (think Greece). The eurozone crisis is now causing friction in Europe, rather than the opposite, and it most certainly isn't aiding either Europe in the world or facilitating enlargement (which is a legitimate EU foreign policy tool).

In other words, this traditional Swedish centre-right vision is dated and needs upgrading - which is true for other contingents in the EPP. Skyttedal's article is an important reminder that if we want to save what's good in Europe, Barroso's "federation" vision - which risks a massive popular backlash - is the opposite of what's needed.

The path for true pro-Europeans must lay elsewhere.

Do the Germans and French still believe in Europe?

The front page of today's Die Welt reads "Germans no longer believe in Europe". According to a TNS Emnid poll carried out in July in Germany, France and Poland on behalf of the Bertelsmann Foundation, support for the EU and the euro has hit an all-time low with 49% of Germans saying they believe they would personally be "better off" without the EU, with only 32% saying that they would be "worse off". By contrast only 34% of French and 28% of Poles said they would be better off without the EU.

The poll also found that 65% of Germans (and 36% of French) believed they would be better off had the euro not been introduced.  

While the gap between French and German public opinion reflected in the above poll is striking, it is not all good news from France as far as the European Commission is concerned. The front page of today's Le Figaro runs with the headline, "The French and Europe: The disenchantment" (although the French word désamour can also be used to describe someone 'falling out of love'). The paper reports on a "shocking" IFOP survey conducted twenty years after the Maastricht Treaty was signed - and the euro was officially created.

According to the poll, if a referendum on the Maastricht Treaty were held today, 64% of French would vote against it. Indeed, one could argue that the French were never hugely enthusiastic about the Maastricht Treaty - only 51% voted 'Yes' in the original referendum. But the finding remains very significant.

Furthermore, a large majority of French also think that the adoption of the euro has had a negative impact on the competitiveness of the French economy (61%), unemployment (63%) and price levels (89%). Interestingly, though, 65% of respondents are opposed to returning to the franc.

Furthermore, the survey also found that 60% of respondents are in favour of "less European integration" of budgetary and economic policies, while 56% consider it "unlikely" that, in the long term, EU member states will give up their sovereignty to establish a "single European state".

Another tough reality check for European Commission President José Manuel Barroso's recent calls for a "federation of nation states" in Europe. As we already noted last week (see here), public opinion across Europe does not really seem to be on the same wavelength...

Public opinion and Europe: back in the real world

Brussels is on manoeuvres. European Commission President Barroso yesterday called for a quantum leap towards a "federation of states" (see here) and today his counterpart in the European Council, Herman van Rompuy, put forth a wishlist covering a range of items that will trigger more eurozone integration (a eurozone budget, debt-pooling, etc). With yesterday's Dutch elections being interpreted as a victory for the centre over the eurosceptic fringe, and the Karlsruhe guys in red robes out of the way, the European project is breathing some fresh air again, right?

Well, as ever, it's more complicated than that. We will return to the Dutch elections in a sec, but for now, US-based German Marshall Fund published the 2012 edition of its Transatlantic Trends survey which is quite interesting.

The chart below caught our attention:

With the exception of Germany - which is not surprising given its desire to export German budget dsipcline in return for lending its credit rating - a majority of respondents in all the other eleven EU countries included in the survey is opposed to "more EU economic oversight of national finances."

Even more interestingly, the share of respondents opposed to greater EU control over national finances has increased since last year's survey in France (58% from 55%), Spain (56% from 53%), Italy (49% from 47%), Portugal (59% from 56%) and the Netherlands (58% from 55%).

As consolation, 'only' 79% of the British now think that the UK should retain control over its finances (down from 84% in 2011). A vaguely asked question about helping "countries with budgetary difficulties" - which is too imprecise to have a real meaning - also saw a declining share of the population supporting it.

A federation of states remains a tough electoral sell everywhere...

EU treaty change: Nowhere to run, nowhere to hide…

 It’s not the focus of the SW1 bubble today, but David Cameron will be taking a deep breath after Jose Manuel Barroso used his ‘state of the Union’ address (we know…) to call for a debate on rewriting the EU Treaties in 2014. It seems there is now no avoiding the major strategic decisions on Europe that both the Conservatives and the Lib Dems have been desperate to avoid lest they tear apart their increasingly fraught marriage.

In one of his most overtly political speeches to date, Barroso was explicit: this crisis is the perfect time to take the next great leap towards a federal Europe. “Where we cannot move forward under the existing treaties, we will present explicit proposals for the necessary Treaty changes ahead of the next European Parliamentary election in 2014, including elements for reinforced democracy and accountability,” he said. “No one will be forced to come along. And no one will be forced to stay out. The speed will not be dictated by the slowest or the most reluctant.”

He hinted that the new treaty discussions would be a wide-ranging affair rather than the more limited crisis-response changes made so far. “This is not just a debate for the Euro area in its present membership. While deeper integration is indispensable for the Euro area and its members, this project should remain open to all Member States.”

The details of the proposals were left open but Barroso did offer his broad vision for the future:

“A deep and genuine economic and monetary union, a political union, with a coherent foreign and defence policy, means ultimately that the present European Union must evolve.”

“Let’s not be afraid of the words: we will need to move towards a federation of nation states. This is what we need. This is our political horizon. This is what must guide our work in the years to come.”

“I call for a federation of nation states. Not a superstate. A democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty in a way that each country and each citizen are better equipped to control their own destiny.”

There was much talk of making the EU “more democratic” and he hinted that his preferred vehicle for doing so is the European Parliament, whose role he described as “essential.” He called for the development of pan-European political parties and for the parties to announce their candidates for Commission President as part of the election campaign.

He also called for a “better developed set of instruments” to bring wayward member states into line with the values of the EU, “not just the alternative between the ‘soft power’ of political persuasion and the ‘nuclear option’ of article 7 of the Treaty,” which currently allows the EU to suspend the voting rights of countries deemed to be in “serious and persistent breach” of the values set out in the Treaties.

In short, it looks like the European Commission is shaping up for a full scale constitutional shake up of the EU a year before the General Election in the UK, a year that is already packed full of EU agenda items: the block opt-out of crime and policing law, the Government’s audit on EU powers is due to be published, there are also European elections, where UKIP could do very well, the aftermath of the long-term EU budget talks and the appointment of a new UK EU Commissioner. There are a huge number of strategic decisions for the UK involved in this discussion (which we have looked at, and will continue to look at).

But one thing is clear, if Barroso gets his way, there will be nowhere for Cameron to hide from an EU renegotiation before 2015.

A new eurozone parliament?

This morning, Handelsblatt is reporting that EU Council President Herman Van Rompuy, Commission President José Manuel Barroso, Eurogroup chief Jean-Claude Juncker, and ECB President Mario Draghi's plans to redesign the architecture of the economic and monetary union include the prospect of a new 'eurozone parliament'.

The details are understandably vague but, according the German daily's report, the new parliament, in which both MEPs and national parliamentarians would sit, would have powers over eurozone members’ fiscal and economic policy. Whether the EU will need yet another building for this is yet to be addressed...

Nevertheless, the proposal, if it ever sees the light of day, will be hugely controversial with both euro and non-euro members and would of course require Treaty change.

In addition, Van Rompuy and Barroso need reminding that they represent the 27 member EU and not simply the eurozone and that any brief to restructure the eurozone needs to square this with the EU as a whole and the requirements of the single market. Additionally, as we have argued, the UK must ensure that any grand eurozone plans such as these are a quid pro quo for establishing a space in Europe for those countries not intent on joining the single currency, and also for those that may choose to leave.

This might then provide a new form of membership that the UK could live with in the long term.

Trust in the EU at an all time low

Plenty for Barroso to contemplate

The European Commission has published the results of its latest Eurobarometer survey. Here are some interesting findings:

• Trust in the EU has, on average, reached an all-time low, now standing at 31% - a 3% decrease since autumn 2011. At the same time, the average level of trust in national governments and parliaments has increased, reaching 28% for both;

• Country-by-country results are equally worrying. Both in Greece and Spain, for instance, the level of trust in the respective governments has decreased since last autumn, and now stands at only 6% (down 2%) in Greece and 13% (down 3%) in Spain. Reflecting that these two countries still associate the EU with positives such as democracy - marking a break from recent authoritarian pasts - people still tend to trust the EU more than their national governments (hardly an achievement given the low levels). However, here's the worrying part if you sit in Brussels. In both countries, trust in the EU has dropped like a stone - and fallen to a much greater extent than trust in national governments. Only 19% of Greeks now trust the EU - down a full 10% in less than a year, while 21% of Spaniards, down 9%, say they "tend to trust" the EU; 

• This suggests that trust in the EU as a counter-balance to unpredictable national politics is starting to diminish. As we've argued repeatedly, a key deciding factor for the future of the euro will be if and when the tipping point occurs: when the Mediterranean countries start to associate the EU and/or the euro with outright pain and erosion of national self-determination.

• The traditional Eurobarometer question about whether a country has benefited or not from EU membership seems to be missing in the latest survey. It's only asked once a year (presumably to avoid too many bruised egos in Brussels) and so we hope that it will re-appear in the autumn 2012 edition.   

• Also interestingly, trust in the German government received a boost, increasing by 7% from the previous Eurobarometer. In the meantime, the number of Germans who "tend to trust" the EU remained unchanged at 30%, while the number of those who "tend not to trust" the EU rose to 61% - 4% higher than in autumn 2011;

• The average share of Europeans who think that the EU is "best able" to tackle the current economic crisis has decreased to 21%, down 23%, as big a share that think national governments are better placed. This question is pretty pointless though as it leaves what "taking effective action" (which is the exact formulation) completely open to interpretation. For example, if eurobonds are implied then you lose the Germans, while if EU-imposed austerity is implied you lose the Greeks.

Eurobarometer polls are always a mixed bag and are clearly, in large parts, driven by the Commission's political and ideological bias. But in so far as the questions are comparable over time, they can show some interesting, albeit worrying, trends.

An EU banking union within a year? Don't think so.

In an interview in today's FT, Commission President Jose Manuel Barroso is raising the stakes in the talks on a 'banking union' in the EU and/or eurozone, involving an EU-wide deposit guarantee scheme, a rescue fund paid for by financial institutions and giving an EU-wide supervisors the power to order losses on banks, without the approval of national authorities. The Commission, keen to get back in the game following the shift in focus to national capitals in the wake of the crisis, says it'll present a proposal for a banking union at the EU summit at the end of June.

According to the FT, Barroso said all of this could be achieved within the next year and didn't necessarily require an EU Treaty change. He said, "there is now a much clearer awareness" in national capitals, including Berlin and London, that Europe needed to press ahead with more integration "especially in the euro area."

Barroso noted,

“We have a chancellor of Germany that is indeed proposing a political union for Europe, which is extremely ambitious. We have a French president that has been highlighting the need for a more European approach regarding crucial issues like growth and investment. And we have a British government – and this is indeed a very interesting development – that while stating its willingness to stay out of the euro, assumes as indispensable and desirable to further integration in the eurozone.” 

Good marks for optimism. In reality, though, there's no way a banking union will be up and running within a year. Even if he was hinting at an agreement in 2013, that too is optimistic - at least on the chunkier stuff. A number of member states still have huge reservations. The UK won't be part of a banking union regardless, and anything requiring unanimity and/or Treaty change may be used by Britain to re-heat demands for safeguards over UK financial services, which Osborne has already floated. Other non-euro members also have reservations, with the Swedes opposing a banking union based on cross-border liabilities on a point of principle and the fear of moral hazard (unlike the Treasury, which seems happy for the eurozone to do this as long as the UK is not on the hook).

Merkel will face resistance from various corners: the Bundesbank, the legal class (hello Treaty change), its financial supervisors BAFIN, the media and a host of backbench MPs. This will have to go through the German Parliament, which per definition takes time. And as for the French, we're not entirely sure that Hollande quite has his head around what a banking union would involve - and that France's position is somewhat fluid at the moment.

And remember, a proposal by the Commission for limited cross-border bank deposit guarantees has been stuck in the Brussels machinery for two years, at the hands of resistance in member states.

This will be a drawn-out one.

The AIFM Directive: It's back!

Some of you may recall the AIFM Directive, tabled by the European Commission in 2009. The proposal was aimed at striking down on hedge fund managers, private equity firms, investment trusts and other so-called “alternative investment” funds (i.e. those that do not invest in stock, bonds or cash), in the wake of the financial crisis. That there was absolutely no evidence that these funds had much to do with the crash in the first place seems to have been a secondary concern. That Commission President Jose Manuel Barroso was seeking support from socialist MEPs for his re-appointment was likewise just a coincidence...

Now, as we argued in the first comprehensive impact assessment of the proposal, the industry does need more transparency and accountability, so in that sense, the Commission was correct in looking at new regulation for this sector. But the Commission’s original proposal was fundamentally flawed. Leaving aside the huge number of technical details involved (for a wider discussion see here and here), the original proposal would have paved the way for a world in which investors in these funds, the managers of them, their custodians (that hold the assets of the funds) and the funds themselves were all confined to a life either within the EU’s borders, or a life outside them. This was clearly contrary to best industry practice (for example by increasing concentration risk), the nature of modern finance (which is inherently mobile, global and cross-border) and would have also contradicted the 2009 April G-20 summit conclusions, which instructed world leaders to

“promote global trade and investment and reject protectionism, to underpin prosperity.”

To their credit, MEPs and national ministers, following 18-20 months of negotiations, adopted a far more sensible version of the proposal which kept many of the Directive’s transparency provisions while aligning most of the other rules with global economic realities and the need for inward investment into Europe.

But, as we also argued in 2009,

“The Commission is the dark horse in all of this. The way the Directive is written leaves the EU executive unusually large room for manoeuvre in deciding key aspects of the legislation – including leverage levels, valuation standards and restrictions on short-selling – either in the implementation phase or further down the road.”

This is because, in the so-called Comitology stage, the Commission has the power to lay down ‘technical’ or ‘supplementary’ standards when these are specified in the proposal, with limited involvement from MEPs and member states (for a background see here).

As reported by the FT this morning, this is precisely what the Commission is now seeking to do, in several ways, including

• Tougher liability rules for custodians (which would be liable for the safekeeping of assets, even if the custodian decided to delegate the responsibility to a third party). This could make EU-based banks far more hesitant to operate with partners in emerging economies, in turn undermining investment in those parts of the world.

• Stricter rules on leverage, i.e. how much money a fund manager is allowed to borrow. Interestingly, a recommendation for a more discretionary model of calculating leverage, put forth by ESMA – the EU’s markets supervisor – was rejected by the Commission.

• Fund managers based outside the EU, would face more obstacles before they could market their products to investors based in the EU. As Andrew Baker of AIMA put it,

  “This would be extremely problematic if not impossible to conclude if the regulation prescribes that the co-operation agreements ensure that third-country regulators enforce EU law in their territories.”

Now beyond the boring technical details, this is politically interesting for at least two reasons:

• The Commission is ignoring ESMA, begging the question, what exactly is Commission's relationship with ESMA and the other EU financial supervisors (ESAs), set up in 2010, meant to be. Specifically, whether “technical details” will be allowed to remain technical or become politicised with the ESAs being colonised by the Commission’s agenda.

• Via the Lisbon Treaty, the Commission has increased its powers in the so-called comitology procedure (for the full story, see here). This is an interesting test case for how far the Commission dares to push its luck.

This will go on for some time and we should not jump to conclusions – and clearly, the industry has its own agenda as well. But, the episode is a reminder of one thing: in EU politics, proposals and laws have a curious habit of always coming back.