EU opinion & policy debates - across languages | BlogActiv.eu

As the response to the Eurozone sovereign debt crisis has shown, when push comes to shove, EU Member States are willing to accept a further transfer of powers to the European level. However, they are – understandably – not so keen on reforms that diminish their international stature. The long overdue consolidation of the Eurozone’s external representation, identified as one of the building blocks of a ‘genuine’ Economic and Monetary Union (EMU), was perpetually delayed under the Barroso Commission. EU Member States, it appears, are still not ready to accept this particular curtailment of their powers. This raises the question whether the new Juncker Commission will be able to seal the deal fifteen years after the Eurozone came into existence.

By Chris Koedooder


A ‘genuine EMU’ calls for unified external representation, says the Commission…

The consolidation of the Eurozone’s external representation is a comparatively minor step on the road towards a ‘genuine EMU’; nonetheless, it carries great symbolical significance. Presently, various EU Member States represent the Union in international financial institutions. A seat at the table in top-level international negotiations brings status, so naturally Member States are reluctant to give up their privileged positions (which often reflect post-WWII power relations rather than our current international economic order). For quite a while now, the Commission has hinted that at some point in the near future it will finally try to break the political impasse which has existed on the issue since 1998, when an initial Commission proposal was not followed up by the Council.

When the sovereign debt crisis was at its peak, Commission President Barroso argued on multiple occasions that a strengthening and consolidation of the Eurozone’s external representation should be pursued. Barroso appeared confident that the Eurozone Member States could be persuaded to give up their seats in the International Monetary Fund (IMF). He even announced that the Commission would present “before the end of 2013” a proposal “to establish a unified position to achieve an observer status of the [Eurozone] in the IMF executive board, and subsequently for a single seat”. As will be explained below, the latter is currently not legally possible.

Why should the Union acquire a seat in the IMF Executive Board though? The IMF emerged from the global financial crisis as the premier international financial institution, so the Union – if it wants to be a strong global actor – should strive to maximize its influence within this institution. Moreover, in recent years, a number of EU Member States have had to call upon the IMF for financial support as a result of either the financial crisis or the sovereign debt crisis. Certain IMF Executive Board decisions, e.g. on policy conditionality, therefore have a direct impact on individual EU Member States and the Eurozone as a whole. Yet, although often perceived by third countries as over-represented in the IMF, the Union’s influence does not actually correspond with its Member States’ cumulative voting share, unlike in the World Trade Organization (WTO) for example. What is more, the coordination among Member States that already takes place “rarely results in effective representation”, because they seldom agree on common positions (see this CEPS report).

 

… but is a unified external representation feasible?

Can a unified external representation of the Eurozone be achieved under the current Treaties, as the Commission has argued? The answer is yes. Article 138(2) TFEU, which applies only to Eurozone Member States, provides that “[t]he Council, on a proposal from the Commission, may adopt appropriate measures to ensure unified representation within the international financial institutions and conferences. The Council shall act after consulting the European Central Bank.”

Somewhat problematic, however, is Article 17 TEU as read in combination with Article 219(4) TFEU. Article 17(1) TEU states that the Commission “[w]ith the exception of the common foreign and security policy, and other cases provided for in the Treaties, [...] shall ensure the Union’s external representation”. One such ‘case’ appears to be EMU. Article 219(4) TFEU provides that “[w]ithout prejudice to Union competence and Union agreements as regards economic and monetary union, Member States may negotiate in international bodies and conclude international agreements.” This means that Eurozone Member States, despite having fully transferred their sovereignty to pursue monetary policy to the ECB, can arguably keep their seats in the IMF and other international financial institutions without acting in breach of the Treaties.

Thus whenever monetary policy matters are being discussed at the international level, for example in the IMF executive board (which conducts the Fund’s day-to-day business), Eurozone Member States speak about – and decide on – issues without any longer possessing the corresponding powers domestically. True, there is already a certain level of coordination among EU Member States at the IMF, but there really ought to be one single Eurozone voice. After all, the Union’s exclusive competence in the area of monetary policy for the Eurozone Member States entails parallel exclusive competence in external relations, as is confirmed by the wording of Article 219(3) TFEU.

The continued presence of Eurozone Member States within the IMF, then, is often justified on the grounds that the Union’s competences in the area of economic policy are still limited. Crucially, though, such a view neglects the fact that the IMF is first and foremost a monetary institution; the Fund’s involvement in economic policy merely derives from its primary functions. In sum, the feasibility of a unified external representation of the Eurozone is thus not so much a legal question, but rather a political one. Of course Member States do not want to lose control over their foreign and economic policies, but undeniably the Union’s internal competences, tasks, and responsibilities in the area of economic policy coordination (and financial supervision) have been upgraded considerably. This should tilt the balance in favour of unified Eurozone external representation.

 

The issue of IMF membership

There is, however, one significant legal hurdle that should not be left unmentioned here. Article II, section 2 of the IMF Articles of Agreement, the Fund’s founding charter, provides that membership is only open to “countries”. Thus, for the Union to become a member of the IMF, the Articles of Agreement would first have to be amended. This requires the acceptance by three-fifths of the IMF Members, having 85 % of the total voting power. In the past, negotiations to have the Union become a member of other international organizations proved to be laborious. Even if a sufficient number of IMF Members would agree on the need to amend the Articles of Agreement for this purpose, EU Member States would likely have to make major concessions in terms of their overall voting share.

Be that as it may, in so far as Eurozone Member States are no longer able to fulfil their obligations under the IMF Articles of Agreement without encroaching upon the Union’s exclusive competence, it can be argued that they have a duty to take “all appropriate steps to eliminate the incompatibilities” between the Union Treaties and the Articles of Agreement (see Article 351 TFEU). Such steps could involve a cumbersome renegotiation of the Articles of Agreement or more pragmatic solutions, like enabling the Union to substitute for its Member States as a de facto IMF Member, following the example of the GATT 1947.

 

New mandate, new opportunity?

The new Commission President, Jean-Claude Juncker, has in the past expressed his dissatisfaction with the status quo in quite harsh terms. It is therefore no surprise that consolidation of the Eurozone’s external representation is also implied in the Commission’s stated aim to make the Union a stronger global actor.

When the European Parliament recently asked Frans Timmermans, the Commission’s first Vice-President, in charge of Better Regulation, Inter-Institutional Relations, the Rule of Law and the Charter of Fundamental Rights, to present his views on the institutional implications of the crisis before his hearings in the Parliament, he answered that the Union should respond to the crisis with “more coordination, more convergence, more social dialogue and a better external representation”. On the latter, he added:

The external representation of the euro area is something that merits being addressed more closely. Articles 17 TEU and 138 TFEU would allow this. The euro area needs to be represented in a way that is aligned with its economic weight, in particular in fora such as the IMF. If I am confirmed as Commissioner I will be keen to see the Commission launch a discussion about how to achieve this with our Member States, many of whom have traditionally been reluctant.”

Yet when asked how he intends to overcome Member States’ resistance, Timmermans’ position was decidedly less straightforward. He warned that a move towards a single representation for the Eurozone would at present diminish Europe’s clout in the IMF and noted that reform of the IMF’s governance structure, necessary to allow for Eurozone representation, would take time. Furthermore, he added that the question of the Eurozone’s external representation will arise in all its seriousness once the Eurozone comprises virtually all Member States. This would seem to suggest that unified Eurozone external representation is still very far away.

Nonetheless, statements by two of Timmermans’ new colleagues suggest a proposal may actually be forthcoming. Pierre Moscovici (Economic and Financial Affairs) stated that “[r]einforced external representation of EMU” strikes him as “a natural and desirable consequence of greater integration within EMU”. Valdis Dombrovskis (Euro and Social Dialogue), for his part, indicated that he will “work towards a proposal for a more efficient external representation of [the] Economic and Monetary Union”. What is more, Dombrovskis informed the Parliament that both their cabinets are currently “working in order to come up with pragmatic arrangements to be presented by the beginning or within the first weeks of [the new Commission’s] mandate, as demanded by President-elect Juncker”.

At present, though, the division of labour between Moscovici and Dombrovskis is unclear. As reported by the Financial Times, when asked which of the two will represent the Commission in international meetings like the IMF and the G20, Dombrovskis was unable to produce a satisfying answer. Juncker, in a follow-up letter to the Parliament, subsequently kept things unnecessarily vague by stating that he expects “the decision to be taken depending on the topics on the agenda”.

 

The Commission will have to play it smart

The idea that Eurozone external representation should be organized more efficiently is evidently gaining support at the European level. As a matter of fact, the European Parliament quite regularly calls upon the Commission to put forward a proposal on the basis of Article 138 TFEU. The Commission has reportedly already been working out the details of a proposal behind the scenes, contemplating how and – importantly – when the argument that a strengthened external voice of the EMU is an integral part of the current efforts to improve the economic governance of the Eurozone can best be presented.

All things considered, the Juncker Commission seems to have the intention of initiating unified Eurozone external representation during the first year of its mandate. Yet if it wants to succeed where its predecessors failed, the Commission will have to show some audacity in confronting uncooperative Eurozone Member States in the Council; audacity that the Barroso Commission so obviously lacked. This requires political brinkmanship, but it can be done. In any event, the new Commission would be well-advised to partner up with the European Parliament this time.

Convincing Member States is, however, only part of the challenge that the Commission faces. By renegotiating the IMF Articles of Agreement, the Union and its Member States may be opening Pandora’s box. Other IMF Members, the BRICS countries in particular, would likely want to see their growing economic weight translated into increased voting rights at the expense of EU Member States in return for a single seat, if they are willing to cooperate at all. For this reason, political actors at the European level should consider carefully which form of unified external representation ultimately best serves the Union’s and the Member States’ interests.

 

This blog post was first published at europeanlawblog.eu on 13 November 2014.

Chris Koedooder, MA, LLM is a PhD researcher at the Amsterdam Centre for European Law and Governance. His personal page can be accessed here.

Author :
Print
EurActiv Network