Europe's Crisis of Democracy and Legitimacy

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By Peter Wahl*
IDN-InDepth NewsViewpoint

BERLIN (IDN) - Even the boldest defenders of the EU admit that there is a democratic deficit in the supra-national system. While the member states have fully developed democratic systems, the Brussels institutions do not meet the standards of a fully-fledged democratic system. This is not a leftist opinion, but among others part of an official sentence of the German Supreme Court.

The basic problem is that the transfer of sovereignty from the national level to the supra-national has not been accompanied by an equivalent democratisation of the European institutions. The Commission, as the gathering of governments, has received the most far-reaching rights, whereas the European Parliament has limited competences.

For instance, it doesn’t have the right to initiate law making. In most decisions, the Parliament must only be consulted by the Commission, but it has nothing to decide. And as there is nothing like a European public – most people still live their daily lives in their national culture – it is very difficult and expensive to organise a popular counterweight from below. In spite of some progress in organising among European trade unions and NGOs, an integrated European civil society does not really exist yet.

As the corporate sector disposes of the financial resources to address the many practical challenges of international cooperation, it is also the most advanced in organising at the European level. This is why the influence of corporate lobbies in Brussels is even stronger than at the national level, as there is no counter-veiling power, or only a weak one. This is an additional factor contributing to the democratic deficit of the EU.

As a result, the acceptance of the EU among citizens is falling in all member states. Confidence in the European institutions is constantly eroding. As a side effect, nationalist and right populist trends in many European countries are growing.

Size and Complexity

When the EU was created, the first six members were not a homogenous group, but the heterogeneity was still limited. With the entrance of the UK and the enlargement first to the Mediterranean, and later to the Nordic countries, and after the end of the Cold War to Eastern Europe, the EU now consists of 27 member states. The enlargement strategy is also part of the geopolitical ambition of the EU to become a superpower.

However, under the conditions of such an enormous heterogeneity, governance structures and decision-making have become too complex and extremely slow. There are so many differences in economic development, political systems and cultures to be coordinated that the supra-national system is clearly unable to cope with it adequately. This is why more and more situations of blockades are occurring.

Crisis and Authoritarian Rule

While complexity is already a problem in normal times, under conditions of extraordinary crises and when the time factor plays a decisive role even the modest democratic standards of the European institutions can be overrun by informal agreements.

An informal hierarchy has been established with Germany and France on top, and practices of authoritarian rule are emerging. This is particularly true for the Euro zone. The other countries and the top personnel of the EU institutions are not informed of decisions, but then have to applaud them. The same is true for the democratic institutions at the national level. National parliaments are no longer able to control their governments and the division of powers is eroding.

In the case of Greece the IMF, the EU Commission and the European Central Bank have already taken control of the budget. The implementation of the fiscal union will accelerate the erosion of democracy. National parliaments will lose control over the budget, one of the noblest among their rights.

Which Future?

If the EU wants to have a future, it is time for substantial changes. The neo-liberal course and ambitions to become a superpower have failed.

As a first step, emergency measures should be taken in order to end the pressure on the crisis countries and to stop speculative attacks. An emergency package would have to have the following elements:

a. the ECB has to take over the role of lender of last resort;

b. Credit default swaps and similar products, which are used for speculative attacks should be banned immediately;

c. downgrades of sovereign debtors by the rating agencies should be banned until the crisis is over;

d. strong progressive tax increases on high incomes, wealth and property, going up (as in Roosevelt’s New Deal) to 90% for top incomes and billionaires;

Control over Financial Markets

Politics have to regain control over the financial markets. Therefore, a fast-track package of reforms has to be implemented, which follows the rationale of downsizing the financial sector and reducing its complexity and interconnectedness:

a. separation of investment and commercial banking;

b. rising capital requirements for all institutions in the investment sector to 15%, for systemically important financial institutions which are too big to fail to 20% and strict limits for leverage;

c. ending all forms of shadow banking including over the counter trade;

d. obligatory and independent impact assessment for all new products;

e. neutralizing fiscal paradises;

f. banning of credit certification and of highly speculative products;

g. implementing a financial transaction tax on trade with all asset classes;

h. enlarging rights and increasing capacities of supervisors, in particular for trans-border operation;

i. a trade register for commodity exchanges which gives market access only to commercial traders and not to institutional investors;

j. public and cooperative banks under stakeholder control have to be promoted.

Reducing Imbalances

A common and complementary strategy of surplus and deficit countries has to be established, with the following elements:

a. surplus countries have to increase domestic demand through public investment with focus on social and environmental investment and by increasing real wages above productivity for a certain period;

b. deficit countries should implement an austerity programme for the rich, with increasing taxes on high incomes and wealth, cuts to military expenditures and environmentally unsustainable subsidies. Wages should only grow at the same rate as productivity;

c. a green Marshall Plan for countries with problems of competitiveness has to be set up in order to stimulate sustainable growth and to end unemployment.

Social Europe and Democratisation

The asymmetry between market integration and social integration must end. Social harmonization as a race to the top has to be the guideline. Improvement of social progress must be the hard law and strictly enforced.

The European Parliament must become a full-fledged parliament, with the right to make laws, control the budget, elect and remove Commissioners. Voting has to be based on the principle of one person, one vote. European referendums for important decisions must be introduced. The EU is living at the point of a dramatic historic conjuncture. Only measures which are up to the mark will be efficient.

*Peter Wahl is a researcher at WEED, a German policy institute, where he works on issues of world trade and international finance. This article is extracted from the WEED Briefing paper 'The EU At the Crossroads' in December 2011. [IDN-InDepthNews - December 16, 2011]

2011 IDN-InDepthNews | Analysis That Matters

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