Leadership in Europe: A Recipe for Reducing Legal Uncertainty

Concerning the legal environment of business, the lawyers who teach as full-time instructors in American business schools affirm that managers would rather have a challenging environment that they know than one that is characterized by headlines such as, “Legal Uncertainty Imperils EU Agreement.” At the E.U.’s parliament, which represents the E.U.’s citizens, the president of the European Council, Herman Van Rompuy, said in the wake of the agreement, “An intergovernmental treaty was not my first preference, nor that of . . . most of the member states . . . It will not be easy, also legally speaking. I count on everybody to be constructive, bearing in mind what is at stake.”[1] Investors were “largely dismissive” of the Council meeting  at which the extra-E.U. agreement on strengthening the enforcement mechanism of state deficit and debt limits had been reached at the end of the previous week. Alan Brown, chief investment officer at Schroders Investment Management, which had at the time almost $300 billion under management, said of the results of the Council meeting, “Yes, it was what I expected, and yes, I was disappointed.”[2] Schroders was backing up this view with a modest bet against the euro. Relatedly, Barclays was forecasting the currency to fall from $1.30 on December 13, 2011 to $1.25 by June 2012. Besides the pessimism on the “intergovernmental treaty” as well as a possible increase of funds from the $500 billion cap on the agenda at a Council meeting in March 2012, the sheer uncertainty described by Van Rompuy lowers the value of the announced agreement and the outlook concerning the viability of the euro as well as the E.U. itself.

Federalismus in Action: Jose Barosso of the E.U. Commission and Angela Merkel of Germany / NYT

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Steven Erlanger and Stephen Castle, “Europe United, Minus One: A Firm German Imprint on an E.U. Transformed,” International Herald Tribune, December 10-11, 2011. 

2. Matina Stevis, Frances Robinson, and Marcin Sobczyk, “Legal Uncertainty Imperils EU Agreement,” The Wall Street Journal, December 14, 2011; Tom Lauricella, “Euro at 11-Month Low,” The Wall Street Journal, December 14, 2011.

Unanimity as Outmoded in the E.U."

In the U.S., states can get waivers from having to comply with regulations, depending on the particular law; federal legislation is not passed as if only between some of the several states. It is pretty much a one-size-fits-all notion of federal law, with opt-outs possible typically only on particular regulatory requirements. One such publicized waiver enables states to be exempted from the health-insurance mandate if they can show they have achieved the aim (universal healthcare) by another means. Massachusetts, for example, had a pre-existing program of universal health-care.

In Europe, David Cameron vetoed the European Council proposing an amendment to the E.U.’s basic law that would have strengthened the enforcement mechanism constraining state governments that exceed deficit and debt limits established by the E.U. His message was on behalf of state rights. So it was very smart indeed that the Europeans came up with a way to avoid the downside of unanimity while recognizing that some of the states jealously guard the sovereignty they have retained.  Hitherto, the veto mechanism that any state can use to block laws in important areas like taxation has crippled or at least hampered the E.U. institutions in meeting even the responsibilities entailed in the E.U.’s current competencies. Besides gradually increasing the percentage of the E.U.’s competencies (domains of authority) subject to qualified majority voting rather than unanimity, it turns out that groups of at least nine states can go ahead with legislation if a proposal is stalled or vetoed by a state. Crucially, the vetoing state need not be subject to the legislation. Valuing this is a distinctive European trait in the annals of modern federalism. Adding competencies to the E.U. government need not require every state, including most notably euroskeptic, veto-prone states like Britain, to give up more sovereignty.

The Visible Hand: Markets Forging a Stronger E.U.

Joschka Fischer, a former foreign minister of the state of Germany, said the agreement under which 17 state governments accept more oversight and control of their budgets by the European Union “was a big step, which was pushed on the Europeans by the markets.”[1] Such pressure was necessary, given the conflict of interest bearing on state officials working at the federal level on a deal that would add a new competency to the E.U. “(I)n the end,” Fischer added, “the markets have limited the options of the political leaders, especially of Merkel, and pushed her into giving more support for the euro.”[2] Giving more support for the euro meant giving more power to the E.U. at the expense of the state-level where Merkel has most of her power. From this vantage point (i.e., the power that state officials have at the E.U. level), it is amazing that the E.U. has been able to acquire any additional competencies.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Steven Erlanger and Liz Alderman, “Chronic Pain for the Euro,” The New York Times, December 12, 2011; Landon Thomas, “A Stark Step Away From Europe,” The New York Times, December 11, 2011. 

2. Ibid.

The Democracy Deficit in Nominating Presidential Candidates

“Newt Gingrich is up, Herman Cain is out, and the attacks are getting sharper as the GOP primary campaign enters the final month.”[1] The final month, that is, before “Iowa launches the contests that will choose the challenger to President Obama.” This has the ring of before time began, or before the beginning. That anything is decided before the beginning may seem metaphysically impossible even if it applies politically. One might demur, claiming that anything without a foundation ought not to be able to exist, let alone to stand. Can Americans borrow anything from the E.U.'s presidents that might improve how the U.S. president is selected?

The full essay is at Essays on Two Federal Empires, which is available at Amazon. 

1. Susan Page, “Gingrich Rises in GOP Field; Cain Out,” USA Today, December 5, 2011.

A Dilemma for the E.U.: A Convention or an Amendment?

In November 2011, European leaders began to talk about amendments to the E.U. that would “change the fundamental structure of the union.”[1] Complicating the talks was ambiguity concerning the nature of the E.U. itself at the time. Foremost among the changes being discussed was the idea of a form of centralized oversight of the budgets of the state governments, with “sanctions for the profligate.”[2] The existing E.U., while more than the American Articles of Confederation, was at the time found to be insufficient in keeping the debt crisis from spreading from state to state and engulfing the union itself and its currency. “The survival of the euro zone is in play,” one senior European official said, “So far it’s been too little, too late.”[3] In this respect, the pressure for “ever closer union” was like that facing the Americans in the mid-1780s. Because the nature of the union was itself an issue, a convention composed of delegates—not state officials—directly elected by the people for the purpose might seem best suited. However, I contend that while rethinking the E.U. was not without merit at the time, the specificity of the planned amendment argues against the idea.

1. Steven Erlanger, "Leaders Struggle for a Deal to Keep Euro Intact," The New York Times, December 4, 2011.

2. Ibid.

3. Ibid.